Argon Airlines and Boron Airways compete for passengers travelling the Boston-Albany-Buffalo corridor. Both airlines are considering...

 

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Argon Airlines and Boron Airways compete for passengers travelling the Boston-Albany-Buffalo corridor. Both airlines are considering offering discount air fares during the traditionally slow month of February. The four strategy profiles for this static game are (Discount, Discount), (Discount, No discount), (No discount, Discount), and (No discount, No discount). The respec- tive (Argon, Boron) profits in millions of dollars are (-1,-1), (30, -5), (-5, 30), and (5, 5). a. What is the Nash equilibrium strategy profile if this game is played one time? b. Suppose that the probability that the game will end in the next stage is 15 percent. Above what interest rate can we expect a coalition to fail? c. Suppose the interest rate is 10 percent. For what probability that the game will end will the players be indifferent between collaboration and defection? Argon Airlines and Boron Airways compete for passengers travelling the Boston-Albany-Buffalo corridor. Both airlines are considering offering discount air fares during the traditionally slow month of February. The four strategy profiles for this static game are (Discount, Discount), (Discount, No discount), (No discount, Discount), and (No discount, No discount). The respec- tive (Argon, Boron) profits in millions of dollars are (-1,-1), (30, -5), (-5, 30), and (5, 5). a. What is the Nash equilibrium strategy profile if this game is played one time? b. Suppose that the probability that the game will end in the next stage is 15 percent. Above what interest rate can we expect a coalition to fail? c. Suppose the interest rate is 10 percent. For what probability that the game will end will the players be indifferent between collaboration and defection?

Answer rating: 100% (QA)

SOLUTION a To find the Nash equilibrium strategy profile we need to look for a situation where neith... View the full answer