Dan Murphy's (DM) and BWS are the only two liquor chains in Australia that hold the rights to sell a popular new beer named Victoria Sweeter (VS). Both Dan Murphy's and BWS are contemplating between charging a high price ($60 per case) or a low price ($40 per case). The payoff matrix below shows all possible scenarios and outcomes for the two firms. BWS Charge $60 per case Charge $40 per case Dan Murphy's (DM) Charge $60 per case DM: $30,000 profit BWS: $25,000 profit DM: $13,000 profit BWS: $38,000 profit Charge $40 per case DM: $45,000 profit BWS: $12,000 profit DM: $19,000 profit BWS: $20,000 profit * Profits reported in the above table are monthly figures on the Victoria Sweeter (VS) beer only. Required: (a) Identify the dominant strategy for Dan Murphy's in this game. Show a detailed analysis to prove why it is the dominant strategy (b) Identify the non-cooperative* Nash equilibrium for this game. (* Non-cooperative means that each firm makes their decision independently and does NOT cooperate) (c) Clearly explain why your answer in (b) above is the Nash equilibrium for this game (d) Notice that Dan Murphy's and BWS can both earn good profits by both charging $60 per case. Clearly explain why this is NOT the non-cooperative Nash equilibrium. (e) Suppose that Dan Murphy's and BWS are to review their pricing policies every two weeks. This means the two firms will keep playing the same game repeatedly. What do you think will be the most likely outcome of this repeated game. Clearly explain why
Dan Murphy's (DM) and BWS are the only two liquor chains in Australia that hold the rights to sell a popular new beer named Victoria Sweeter (VS).
Both Dan Murphy's and BWS are contemplating between charging a high price ($60 per case) or a low price ($40 per case).
The payoff matrix below shows all possible scenarios and outcomes for the two firms.
| BWS | |||
| Charge $60 per case | Charge $40 per case | ||
| Dan Murphy's (DM) | Charge $60 per case |
DM: $30,000 profit |
DM: $13,000 profit |
| Charge $40 per case |
DM: $45,000 profit |
DM: $19,000 profit BWS: $20,000 profit |
* Profits reported in the above table are monthly figures on the Victoria Sweeter (VS) beer only.
Required:
(a) Identify the dominant strategy for Dan Murphy's in this game. Show a detailed analysis to prove why it is the dominant strategy
(b) Identify the non-cooperative* Nash equilibrium for this game.
(* Non-cooperative means that each firm makes their decision independently and does NOT cooperate)
(c) Clearly explain why your answer in (b) above is the Nash equilibrium for this game
(d) Notice that Dan Murphy's and BWS can both earn good profits by both charging $60 per case. Clearly explain why this is NOT the non-cooperative Nash equilibrium.
(e) Suppose that Dan Murphy's and BWS are to review their pricing policies every two weeks. This means the two firms will keep playing the same game repeatedly. What do you think will be the most likely outcome of this repeated game. Clearly explain why
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