c. Two airline companies decide to engage in collusive behaviour. Analyse the game between two such companies. Suppose that each company can charge either a high price for tickets or a low price. If one company charges €100, it earns low profits if the other company charges €100 also, and high profits if the other company charges €200. On the other hand, if the company charges €200, it earns very low profits if the other company charges €100, and medium profits if the other company charges €200 also. (i) Draw the payoff matrix for this game. Airline A's Decision Low Price High Price Low Price Airline A Airline A Airline B's Decision (ii) What is the Nash equilibrium in this game? Explain. Airline B Airline B High Price Airline B Airline A Airline A Airline B (iii) If a group of sellers could form a cartel, what quantity and price would they try to set?
c. Two airline companies decide to engage in collusive behaviour. Analyse the game between two such companies. Suppose that each company can charge either a high price for tickets or a low price. If one company charges €100, it earns low profits if the other company charges €100 also, and high profits if the other company charges €200. On the other hand, if the company charges €200, it earns very low profits if the other company charges €100, and medium profits if the other company charges €200 also. (i) Draw the payoff matrix for this game. Airline A's Decision Low Price High Price Low Price Airline A Airline A Airline B's Decision (ii) What is the Nash equilibrium in this game? Explain. Airline B Airline B High Price Airline B Airline A Airline A Airline B (iii) If a group of sellers could form a cartel, what quantity and price would they try to set?
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter17: Oligopoly
Section: Chapter Questions
Problem 9PA
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Transcribed Image Text:C. Two airline companies decide to engage in collusive behaviour. Analyse the game between two such
companies. Suppose that each company can charge either a high price for tickets or a low price. If one
company charges €100, it earns low profits if the other company charges €100 also, and high profits if the
other company charges €200. On the other hand, if the company charges €200, it earns very low profits if the
other company charges €100, and medium profits if the other company charges €200 also.
(i) Draw the payoff matrix for this game.
Airline A's
Decision
Low
Price
High
Price
Low Price
Airline A
Airline A
Airline B's Decision
(ii) What is the Nash equilibrium in this game? Explain.
Airline B
Airline B
High Price
Airline B
Airline A
Airline A
Airline B
(iii) If a group of sellers could form a cartel, what quantity and price would they try to set?
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