Consider this market that is dominated by two airlines, American and United. Each can choose to charge a high price (and restrict capacity) or charge a low price (and expand capacity). If one of the airlines reduces the price and the other does not, then the airline that reduced the price can capture customers from the other airline. The profits for each outcome is shown below: a. Does United have a dominant strategy? If so, what is it? Explain. b. What is the Nash equilibrium in this game? Explain. c. Is this game an example of a Prisoner’s Dilemma? Explain.

Consider this market that is dominated by two airlines, American and United. Each can choose to charge a high price (and restrict capacity) or charge a low price (and expand capacity). If one of the airlines reduces the price and the other does not, then the airline that reduced the price can capture customers from the other airline. The profits for each outcome is shown below: a. Does United have a dominant strategy? If so, what is it? Explain. b. What is the Nash equilibrium in this game? Explain. c. Is this game an example of a Prisoner’s Dilemma? Explain.

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter5: Buying The Necessities

Section5.1: Shoping For Food

Problem 1R

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