Question

Imagine you are the CEO of Rolex. Your company and Breitling are the leading manufacturers of luxury watches.

A UK based film production studio plans a new James Bond action movie and approaches you with a product placement offer: If you pay £ 2mn, James Bond will wear a Rolex watch in the movie. The production studio makes clear that they will make the same offer to Breitling if you don't accept the deal.
You receive the following information from your market research department:
• If you accept the deal, you can achieve additional gross profits of £ 1.5mn. Breitling's gross profits decrease by £ 0.5mn.
• If Breitling accepts the deal and is lucky (probability = 50%), Breitling can achieve additional gross profits of £ 3mn. Your gross profits decrease by £ 1.5mn.
• If Breitling accepts the deal and is unlucky (probability = 50%), Breitiling can achieve additional gross profits of £ 2mn. Your gross profits decrease by £ 0.5mn.
• If neither Breitling nor you accept the deal, there is no change in gross profits.
Should you accept the deal?

Answer 1

As the CEO of Rolex, you should carefully consider the potential impact on both your company and Breitling before making a decision on whether to accept the product placement offer. By accepting the deal, you can achieve additional profits, but Breitling's profits will decline. Evaluate the potential consequences and weigh them against the benefits.

Step-by-step explanation:

As the CEO of Rolex, there are several factors to consider when deciding whether to accept the product placement offer for the James Bond movie. Firstly, if you accept the deal, your company can achieve additional gross profits of £1.5mn. However, it's important to also consider the impact on Breitling, as their gross profits will decrease by £0.5mn if you accept the deal. Secondly, if Breitling accepts the deal and is lucky, they can achieve additional gross profits of £3mn, but your gross profits will decrease by £1.5mn. On the other hand, if Breitling is unlucky, their additional gross profits will be £2mn and your gross profits will decrease by £0.5mn. Lastly, if neither Breitling nor you accept the deal, there will be no change in gross profits.

Considering these scenarios, it's important to evaluate the potential impact on both your company and Breitling. By accepting the deal, you can achieve additional profits, but Breitling's profits will decline. Additionally, there is a potential risk if Breitling accepts the deal, as it can impact your profits negatively. Therefore, it would be wise to carefully consider the potential consequences and weigh them against the benefits before making a decision.