Two firms, Volga Bus and GMB, are competing to sell 100 buses to Metro Travel, a city owned bus company. They each submit a sealed bid to get the contract, with the contract going to the lowest bid. Each firm has the option of submitting a low-price bid of $15 000 per bus, or a high-price bid of $20 000 per bus. In the event of a tie, the city will buy 50 buses from each firm.

a. Draw a payoff matrix for this simultaneous game. (4 marks)

b. Based on your matrix from part a., what will the Nash equilibrium be? Explain in detail how you arrived at your answer.

Answer rating: 100% (QA)

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