Alpha and Beta, two oligopoly rivals in a duopoly market, choose prices of their

Question

Alpha and Beta, two oligopoly rivals in a duopoly market, choose prices of their products on the first day of the month. The following payoff table shows their monthly payoffs resulting from the pricing decisions they can make

Alphas Price

High Low

Beta Price: HIGH A 200; 300 B 50; 350

LOW C 300; 150 D 75; 200

a) Is the pricing decision facing Alpha and Beta a prisoners dilemma? Why or why not

b) WHat is the cooperative outcome? What is the noncooperative outcome?

C) Which cell(s) represents cheating in the pricing decision? Explain

d) If Alpha and Beta Make their pricing decision just one time, will the choose the cooperative outcome? Why or why not?

Explanation / Answer

A)As you see There is a lot of variation in the profits in the pricing decision facing Alpha and Beta a prisoners dilemma is not possbile because 200+50+300+75=625(Alpha),300+350+150+200=1000(Beta) people tend to buy from Alpha rather than from Beta so Prisoners Dilemma is not the answer

B) If the prices remain the same that is non cooperative outcome the outcomes are as follows

200 A 300,50 B 350,300 C 150, 125 D 100 as you see here Profit of Alpha is 200+ 50=250 and Profit of Beta is 150+ 100=250 this will be the one of the possible outcome

C) Cell represents cheating in the pricing decision as you see the profits of Alpha are more in 75 in D case the value will chance to 125 so from beta the d product will be bought

D) The will choose to coperative as we dont know how many people are buying and which one is sold more if suppose d product is sold more Alpha gets profits and C products get sold more Beta gets most profits so pricing decision takes place the will come out with co-operative outcome

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