Management of the New Fangled Softdrink Company believes that the probability of a customer purchasing Red Pop or the company major competition, Super Cola, is based on the customers most recent purchase. Suppose that the following transition probabilities are appropriate:
To
From Red Pop Super Cola
Red Pop 0.9 0.1
Super Cola 0.1 0.9
a. Show the two-period tree diagram for a customer who last purchased Red Pop. What is the probability that this customer purchases Red Pop on the second purchase?
b. What is the long-run market share for each of these two products?