No need of graphs!!! Consider a market with two firms managed by Harry and Vera.

Question

No need of graphs!!! Consider a market with two firms managed by Harry and Vera. Under a cartel (both firms pick the high price), each firm earns a profit of $80. Under a duo- poly (both firms pick the low price), each firm earns a profit of S60. If the two firms pick different prices, the high-price firm earns a profit of $20 and the low-price firm earns a profit of $90. a. Fill in the following payoff matrix. b. The outcome of the pricing game is that Harry picks 3.1 the price and Vera picks the price. c. The outcome identified in part (b) is a Nash equi- librium because neither firm has an incentive to Vera ligh price Low price

Explanation / Answer

3.1

a)

High Price

Low Price

High price

80, 80

20, 90

Low Price

90, 20

60, 60

b) Harry picks Low price

Vera picks Low price

c) incentive to deviate

For the next question post as new question. No allowed

High Price

Low Price

High price

80, 80

20, 90

Low Price

90, 20

60, 60

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