Consider two firms that are choosing the price of competing products. The choices are contained in the payoff table. Each firm can raise price, lower price, or maintain their price. Suppose the game is played once each period forever. If both players play the strategy "always lower price" is this a Nash equilibrium? Let b = discount rate, 0 < b<1. Raise price Maintain price Lower price Firm B |Raise price Maintain price Lower price 6. 4 8. 8 1. 1 5, 5 4, 6 2, 7 7.2 1. 1 _3, 3 Firm A O No, because it is dominated by raising the price. O No, because it is dominated by both firms raising the price. O No, because it is dominated by maintaining the price. Yes.
Consider two firms that are choosing the price of competing products. The choices are contained in the payoff table. Each firm can raise price, lower price, or maintain their price. Suppose the game is played once each period forever. If both players play the strategy "always lower price" is this a Nash equilibrium? Let b = discount rate, 0 < b<1. Raise price Maintain price Lower price Firm B |Raise price Maintain price Lower price 6. 4 8. 8 1. 1 5, 5 4, 6 2, 7 7.2 1. 1 _3, 3 Firm A O No, because it is dominated by raising the price. O No, because it is dominated by both firms raising the price. O No, because it is dominated by maintaining the price. Yes.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter15: Strategic Games
Section: Chapter Questions
Problem 9MC
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Transcribed Image Text:Question 3
Consider two firms that are choosing the price of competing products. The choices are contained in the payoff table. Each
firm can raise price, lower price, or maintain their price. Suppose the game is played once each period forever. If both
players play the strategy "always lower price" is this a Nash equilibrium? Let b = discount rate, 0 < b < 1.
Firm B
Raise price
Maintain price
Lower price
Raise price Maintain price Lower price
6, 4
8. 8
1, 1
5, 5
4, 6
2, 7
7, 2
1. 1
3, 3
Firm A
O No, because it is dominated by raising the price.
O No, because it is dominated by both firms raising the price.
O No, because it is dominated by maintaining the price.
O Yes.
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