QUESTION 29 Consider the following payoff matrix for a game in which two firms attempt to collude under the Bertrand model: Firm B colludes Firm B cuts Firm A cuts 6,6 24,8 Firm A 8,24 12,12 colludes Here, the possible options are to retain the collusive price (collude) or to lower the price in attempt to increase the firm's market share (cut). The payoffs are stated in terms of millions of dollars of profits earned per year. What is the Nash equilibrium for this game? A. Both firms cut prices. B. There are two Nash equilibria: A cuts and B colludes, and A colludes and B cuts. C. Both firms collude. D. There are no Nash equilibria in this game.

QUESTION 29 Consider the following payoff matrix for a game in which two firms attempt to collude under the Bertrand model: Firm B colludes Firm B cuts Firm A cuts 6,6 24,8 Firm A 8,24 12,12 colludes Here, the possible options are to retain the collusive price (collude) or to lower the price in attempt to increase the firm's market share (cut). The payoffs are stated in terms of millions of dollars of profits earned per year. What is the Nash equilibrium for this game? A. Both firms cut prices. B. There are two Nash equilibria: A cuts and B colludes, and A colludes and B cuts. C. Both firms collude. D. There are no Nash equilibria in this game.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.5P

See similar textbooks

Similar questions

Consider the following Cournot model. • The inverse demand function is given by p = 30 –Q, where Q = q1 + q2. • Firm 1’s marginal cost is $6 (c1 = 6). Firm 2 uses a new technology so that its marginal cost is $3 (c2 = 3). There is no fixed cost. • The two firms choose their quantities simultaneously and compete only once. (So it’s a one-shot simultaneous game.) d. Suppose there is a market for the technology used by Firm 2. What is the highest price that Firm 1 is willing to pay for this new technology? e. Now let’s change the setup from Cournot competition to Bertrand competition, while maintaining all other assumptions. What is the equilibrium price? f. Suppose the two firms engage in Bertrand competition. What is the highest price that Firm 1 is willing to pay for the new technology?
Consider the following Cournot model. The inverse demand function is given by p = 30 –Q, where Q = q1 + q2. Firm 1’s marginal cost is $6 (c1 = 6). Firm 2 uses a new technology so that its marginal cost is $3 (c2 = 3). There is no fixed cost. The two firms choose their quantities simultaneously and compete only once. (So it’s a one-shot simultaneous game.) Answer the following questions. (4points)DeriveFirm1andFirm2’sreactionfunctions, respectively. (2 points) Solve the Nash equilibrium (q1N, q2N). (2points)Whatistheequilibriumpriceandwhatistheprofitlevel for each firm? (3 points) Suppose there is a market for the technology used by Firm 2. What is the highest price that Firm 1 is willing to pay for this new technology? (3points)Nowlet’schangethesetupfromCournotcompetitionto Bertrand competition, while maintaining all other assumptions. What is the equilibrium price? (3 points) Suppose the two firms engage in Bertrand competition. What is the highest price that…
Are the following true or false (justify answer: just T or F will not suffice): A) In a sequential game, the leader always receives a higher payoff due to his/her knowledge of the rationality of the second player. B) Games of complete information are a sub-type of games of perfect information. C) If a game with a more than one unique Nash Equilibrium is played finitely many times, the only type of sub-game perfect equilibriums is some sequence of Nash equilibriums played at every stage.
Suppose two players play a two-period repeated game, where the stage game is the normal-form game shown below. Is there a subgame perfect Nash equilibrium in which the players select (A, X) in the first period? If so, fully describe such equilibrium. If not, explain why not. Player 1 has choice A, B; Player 2 has choice X, Y, Z. Payoff: (A,X)-(5,7), (A,Y)-(2,4), (A,Z)-(3,8), (B,X)-(1,4), (B,Y)-(3,5), (B,Z)-(1,4)
Which of the following statements about a Nash equilibrium is not correct? A. Each player plays a best response to opponents' Nash strategies. B. No player has a profitable unilateral deviation. C. For each finite noncoopertiave game there always exists a pure strategy Nash equilibrium. D. A game has at least two players. Which one of the following statements is incorrect? A. For dynamic games with complete information, not all subgame perfect Nash equilibrium points can be found by backward induction. B. A finite dynamic game with complete information may also have a normal form representation. C. A finite static game with complete information may not have a pure strategy Nash equilibrium. D. A finite static game with complete information cannot have an extensive form representation. Which one of the following statements is correct? A. A supergame cannot have any subgame perfect Nash equilibrium. B. A supergame can only have finite number of subgame perfect Nash…