Strategy Game: Nuts and bolts

Game: Suppose you are an exclusive nut manufacturer who has 26 nuts. There are 26 other individuals who have 1 bolt each (but no nuts)
No nut or bolt in isolation have any value. However as a pair each is worth 100/- each.

Now think of yourself as one of the 26 bolt holder. How much do you think will you be able to charge for your bolt? What can you do to increase your bargaining power?
Form a cartel?
Well now comes the strategy part. How as a nut owner, you can counter their cartel and extract the max of the 100/- X 26 = 2,600/- for yourself.

Answers next week

15 replies on “Strategy Game: Nuts and bolts”

this is a typical company supplier bargaining problem.
In order to service the customer (get 100/-) both the supplier and the company has to agree to collaborate. However the question in any collaborative effort is who gets the larger pie of the profits and how to maximize it.

the next comment would be directed towards Answer.. so go to it only after you have understood the problem

Bolt suppliers: You have nuisance value. i.e. via cartel, or finding alternative customers for your produce you can cut off the supply of the bolts. Then the nut manufacturer would starve to death and would be ready to pay any price you charge.

Nut manufacturer: Well you control the entire market of the nuts. So essentially you would be always in a stronger position. However the fact that the supply of bolts matches the demand of bolts (i.e. supply of nuts) is creating problem of cartel.
So if you could publically destroy 2-3 bolts then you will have an upper hand. No matter now what happens, there will be 2-3 bolt manufacturer who would starve. If you play your cards well, you can convert this into a desperation and increase your bargaining power.

Essentially in strategy in order to maximize ones profit, often one has to destroy value

That’s why probably all mergers and acquisitions executed for so-called “maximisation of profits” acually end up destroying value.

Sorry. I read that long time back, but thought it is not complete answer, so was waiting.

I could not understand it clearly.

Are you saying that, the person sells a bolt and nut for more than Rs.100, and gets Rs.2600 in total?

For how much he buys bolts? If I hold a bolt, I will never it give for free, eventhough I don’t get anything. You are saying, he destroys 2-3 bolts. Then, how can he get Rs.2600?

each nut and bolt pair is worth 100/- and there are a maximum of 26 such pairs possible. However the question is how do you as the sole nut supplier is able to defeat the cartel of bolt supplier and maximize your return.

by destroying nuts, you are destroying value, so the value of the game gets reduced from 2600 to 2300. However by changing the rules of the game, you create a new game where the bolt suppliers have less bargaining power and you maximize your profit.

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