Derive the dominant strategy equilibrium of this game. Explain why this is an example of the prisoners’ dilemma game.
Derive the dominant strategy equilibrium of this game. Explain why this is an example of the prisoners’ dilemma game.
Algebra for College Students
10th Edition
ISBN:9781285195780
Author:Jerome E. Kaufmann, Karen L. Schwitters
Publisher:Jerome E. Kaufmann, Karen L. Schwitters
Chapter12: Algebra Of Matrices
Section12.CR: Review Problem Set
Problem 37CR
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Firms Alpha and Beta serve the same market. They have constant average costs of $2 per unit. The firms can choose either a high price ($10) or a low price ($5) for their output. When both firms set a high price, total demand is 10,000 units which is split evenly between the two firms. When both set a low price, total demand is 18,000, which is again split evenly. If one firm sets a low price and the second a high price, the low priced firm sells 15,000 units, the high priced firm only 2,000 units. Analyze the pricing decisions of the two firms as a non-cooperative game.
Derive the dominant strategy equilibrium of this game.
Explain why this is an example of the prisoners’ dilemma game.
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