In a one shot, simultaneous move game show below, Firms One and Firm Two must in
ID: 1190125 • Letter: I
Question
In a one shot, simultaneous move game show below, Firms One and Firm Two must independently decide whether to charge high or low prices.
Firm A
Firm B
Low Price
High Price
Low Price
(2,2)
(10,8)
High Price
(-8,10)
(6,6)
Identify all of the following strategies, if relevant, for both Firm One and Firm Two
Dominant strategies.
Secure strategies.
Nash equilibrium
Explain the conditions that might arise through collusion if the game is infinitely repeated.
Firm A
Firm B
Low Price
High Price
Low Price
(2,2)
(10,8)
High Price
(-8,10)
(6,6)
Explanation / Answer
therer is no dominant strategy for firm B. Its strategy depends on the strategy of B
On other hand, for firm A Low price is dominant strategy, since it can optimize its profit by adopting Low price strategy.
firm B will adopt the strategy of High price provided firm A goes with strategy of Low price.
If A adopts Low price , it would be profitable to B to also go with low but next A will never adopt the High price strategy. Thus Nash equilibrium will be ( Low and High price)
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