Briefly explain the dilemma faced by a Duopolist. Now consider the following: Al

Question

Briefly explain the dilemma faced by a Duopolist. Now consider the following: Alex and Harry each run a car livery service from Trenton to Atlantic City. Assume that low price guarantees are illegal. The average cost per passenger is constant at $20. The possible outcomes are as follows: A price fixing cartel arrangement. Both Alex and Harry have 15 passengers at a price of $50; Duopoly, no price fixing. Both have 20 passengers at a price of $40; and Underpricing where one charges $40 and the other charges $50. The low price competitor has 28 passengers and the other one has 5 passengers. Compute the profits under each scenario: Cartel pricing, duopoly pricing and underpricing. What is the dominant strategry for both Alex and Harry?

Explanation / Answer

PROFIT UNDER PRICE FIXING CARTEL WILL BE 15 ( 50 - 20) = 15 * 30 = $450 PROFIT FOR EACH, ALEX AND HARRY.

IN CASE OF DUOPOLY PRICING PROFIT WILL BE 20 (40 - 20) = 20 * 20 = $400 PROFIT FOR EACH, ALEX AND HARRY.

IN CASE OF UNDERPRICING, PROFIT FOR LOW CHARGER WILL BE 28 ( 40 - 20) = 28 * 20 = $560

FOR HIGH PRICE CHARGER 5 ( 50 - 20) = 5 * 30 = $150.

A DOMINANT STRATEGY IS A STRATEGY WHERE REGARDLESS OF WHAT OTHER PLAYERS DO, A PLAYER GETS A SMALLER PAYOFF THAN SOME OTHER STRATEGY.

IN THE GAME ABOVE THE DOMINANT STRATEGY FOR BOTH OF THEM IS THE DUOPOLY PRICING WHERE BOTH OF THEM ARE GETTING SMALLER PAYOFF.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.