Assume there are just two firms (X and Y) and they are considering which of two alternative
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Assume there are just two firms (X and Y) and they are considering which of two alternative prices to charge. The decisions are made simultaneously: i.e. without either firm knowing the choice of its rival. The various profits are illustrated in the following pay-off matrix:
(a) What is firm Y’s best response to each of the different prices firm X could charge? Does firm Y have a dominant strategy?
(b) What is firm X’s best response to each of the different prices firm Y could charge? Does firm X have a dominant strategy?
(c) What is/are the Nash equilibrium/equilbria? What is the most likely outcome of this game? Explain your answer.
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a If firm X charges 25 firm Ys best response is to charge 20 earning it 6 million in profits as illu...View the full answer
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