Question 3 (Chapter 13) Two firms at the St. Louis airport have franchises to carry passengers to and from hotels in downtown St. Louis. These two firms, Metro Limo and United Limo, operate nine passenger vans. These duopolists cannot compete with price, but they can compete through advertising. Their payoff matrix is below: United Limo Increase Don't Increase Advertising Advertising Metro Limo Increase Advertising Don't Increase 25, 15 30, 0 Advertising 15, 20 40, 5 3.1 Does each firm have a dominant strategy? If so, explain what that strategy is. 3.2 What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the payoff matrix.

Question 3 (Chapter 13) Two firms at the St. Louis airport have franchises to carry passengers to and from hotels in downtown St. Louis. These two firms, Metro Limo and United Limo, operate nine passenger vans. These duopolists cannot compete with price, but they can compete through advertising. Their payoff matrix is below: United Limo Increase Don't Increase Advertising Advertising Metro Limo Increase Advertising Don't Increase 25, 15 30, 0 Advertising 15, 20 40, 5 3.1 Does each firm have a dominant strategy? If so, explain what that strategy is. 3.2 What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the payoff matrix.

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 15.6IP

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Three oligopolistic firms ("1", "2" and "3") conduct quantity competition in a certain market. The interactions between them take place as follows: firm 1 defines its production quantity, which is immediately observed by firms 2 and 3; then, firm 2 makes its decision on how much it will produce, and only after observing the decisions of firms 1 and 2 does firm 3 finally make its respective choice. Furthermore, the total costs of firms 1, 2 and 3 correspond respectively to c₁(q₁) = 10q₁, c₂(q₂) = 8q₂ and c₃(q₃) = 2q₃, and the firms face a (inverse) demand given by p(Q) = 110 - Q (where Q = q₁ + q₂ + q₃). Based on this information, determine what will be the total amount produced by the firms in the (single) ENPS for that game. (Note: the correct answer is an integer.)
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Suppose two companies, Apples and Dell, are a competing duopoly. If both companies charge the high price, they each earn $700 million in economic profit. If both companies charge the low price, they each earn $500 million in economic profit. If one company charges a high price and the other a low price, the company charging the higher price earns $450 million in economic profit and the company charging the lower price earns $800 million in economic profit. 1. What is the Nash equilibrium? Select all possible answers from the answer list. 2. Thinking back to your answer for the Nash equilibrium, can firms do better than the outcome you identified? Explain.
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Alcoa and Kaiser, duopolists in the market for primary aluminum ingot, choose prices of their 500 foot rolls of sheet aluminum on the first day of the month. The following payoff table shows their monthly payoffs resulting from the pricing decisions they can make. Suppose Alcoa and Kaiser repeat their pricing decision on the first day of every month. Suppose they have been cooperating for the past few months, but now the manager at Kaiser is trying to decide whether to cheat or to continue cooperating. Kaiser’s manager believes Kaiser can get away with cheating for two months, but he also believes that Kaiser would be punished for the next two months after cheating. After punishment, Kaiser’s manager expects the two firms would return to cooperation. Kaiser’s manager ignores the time-value of money and does not discount future benefits or costs. Will Kaiser cooperate or cheat? Explain.
Alcoa and Kaiser, duopolists in the market for primary aluminum ingot, choose prices of their 500 foot rolls of sheet aluminum on the first day of the month. The following payoff table shows their monthly payoffs resulting from the pricing decisions they can make. Suppose Alcoa and Kaiser repeat their pricing decision on the first day of every month. Suppose they have been cooperating for the past few months, but now the manager at Kaiser is trying to decide whether to cheat or to continue cooperating. Kaiser’s manager believes Kaiser can get away with cheating for two months, but he also believes that Kaiser would be punished for the next two months after cheating. After punishment, Kaiser’s manager expects the two firms would return to cooperation. Kaiser’s manager ignores the time-value of money and does not discount future benefits or costs. 4. Suppose you were asked to manage a golf course that was currently charging a uniform price. Would you suggest that the course continue…
Alcoa and Kaiser, duopolists in the market for primary aluminum ingot, choose prices of their 500 foot rolls of sheet aluminum on the first day of the month. The following payoff table shows their monthly payoffs resulting from the pricing decisions they can make. Suppose Alcoa and Kaiser repeat their pricing decision on the first day of every month. Suppose they have been cooperating for the past few months, but now the manager at Kaiser is trying to decide whether to cheat or to continue cooperating. Kaiser’s manager believes Kaiser can get away with cheating for two months, but he also believes that Kaiser would be punished for the next two months after cheating. After punishment, Kaiser’s manager expects the two firms would return to cooperation. Kaiser’s manager ignores the time-value of money and does not discount future benefits or costs. What is the monthly gain to Kaiser from cheating? What is the present value of the benefit from cheating for the two months of cheating?