Walmart and Target are duopolist providers of a special vacuum cleaner (you can only buy this vacuum from one of the two firms!)

If they both markup the vacuum to a high price of $300, they sell 1,000 vacuum cleaners each.

If either one of them cuts the price to $200, they take the entire market - 2,000 vacuum cleaners.

If they both cut the price to $200, they each sell 1,000 vacuum cleaners.

A) What do you think the price of the vacuums will be if they compete like this on only a few occasions? (Hint: is there a dominant strategy?)

B) Would you answer to (A) change if they expect to compete against each other for a long time? Why or why not?

C) Why might Walmart and Target be in favor of a 'price match' guarantee? How might it increase their revenue from the vacuums?

Answer rating: 100% (QA)

A In this scenario the dominant strategy for both Walmart and Target is to cut the price to 200 By d... View the full answer