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Question 3 HEAD and Dunlop set prices simultaneously for their respective tennis rackets. Let p₁ ≥ 0 denote the price set by HEAD and p2 ≥ 0 the price set by Dunlop. Consumers demand 4-2p1+p2 billions of HEAD rackets and 4-2p2+P₁ billions of Dunlops's. Assume that the cost of producing a tennis rackets is 0, so the payoff of HEAD is v₁ (P₁, P2) = P₁(4-2p₁+P2), and the payoff of Dunlop is v₂ (P1, P2) = P2(4 — 2p2 +P₁). - (a) What is the best-response p₁ = BR₁(p2) of HEAD to a price p2 chosen by What is the best-response p2 = BR₂(p₁) of Dunlop to a price p₁ chosen by Dunlop? HEAD? (b) Find the Nash equilibrium of this game. (c) Which strategies are rationalizable (i.e., survive the process of iterated of strategies that are not best responses for any surviving play of the eliminatio opponent,. (d) Suppose both firms choose prices p = P2 = 2. Does this outcome Pareto dominate the Nash equilibrium?

Question 3 HEAD and Dunlop set prices simultaneously for their respective tennis rackets. Let p₁ ≥ 0 denote the price set by HEAD and p2 ≥ 0 the price set by Dunlop. Consumers demand 4-2p1+p2 billions of HEAD rackets and 4-2p2+P₁ billions of Dunlops's. Assume that the cost of producing a tennis rackets is 0, so the payoff of HEAD is v₁ (P₁, P2) = P₁(4-2p₁+P2), and the payoff of Dunlop is v₂ (P1, P2) = P2(4 — 2p2 +P₁). - (a) What is the best-response p₁ = BR₁(p2) of HEAD to a price p2 chosen by What is the best-response p2 = BR₂(p₁) of Dunlop to a price p₁ chosen by Dunlop? HEAD? (b) Find the Nash equilibrium of this game. (c) Which strategies are rationalizable (i.e., survive the process of iterated of strategies that are not best responses for any surviving play of the eliminatio opponent,. (d) Suppose both firms choose prices p = P2 = 2. Does this outcome Pareto dominate the Nash equilibrium?

Algebra & Trigonometry with Analytic Geometry
Algebra & Trigonometry with Analytic Geometry
13th Edition
ISBN:9781133382119
Author:Swokowski
Publisher:Swokowski
Chapter9: Systems Of Equations And Inequalities
Section9.4: Linear Programming
Problem 13E
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Question 3 HEAD and Dunlop set prices simultaneously for their respective tennis rackets. Let p₁ ≥ 0 denote the price set by HEAD and p2 ≥ 0 the price set by Dunlop. Consumers demand 4-2p₁+p2 billions of HEAD rackets and 4-2p2+p₁ billions of Dunlops's. Assume that the cost of producing a tennis rackets is 0, so the payoff of HEAD is v₁ (P1, P2) = P₁(4-2p1+P2), and the payoff of Dunlop is v2 (P1, P2) = P2(4- 2p2 + P₁). (a) = What is the best-response p₁ What is the best-response p2 BR₁(p2) of HEAD to a price p2 chosen by BR₂(p1) of Dunlop to a price p₁ chosen by Dunlop? = HEAD? (b) Find the Nash equilibrium of this game. (c) Which strategies are rationalizable (i.e., survive the process of iterated eliminati of strategies that are not best responses for any surviving play of the opponent,. (d) Suppose both firms choose prices p = p₂ = 2. Does this outcome Pareto dominate the Nash equilibrium?
Transcribed Image Text:Question 3 HEAD and Dunlop set prices simultaneously for their respective tennis rackets. Let p₁ ≥ 0 denote the price set by HEAD and p2 ≥ 0 the price set by Dunlop. Consumers demand 4-2p₁+p2 billions of HEAD rackets and 4-2p2+p₁ billions of Dunlops's. Assume that the cost of producing a tennis rackets is 0, so the payoff of HEAD is v₁ (P1, P2) = P₁(4-2p1+P2), and the payoff of Dunlop is v2 (P1, P2) = P2(4- 2p2 + P₁). (a) = What is the best-response p₁ What is the best-response p2 BR₁(p2) of HEAD to a price p2 chosen by BR₂(p1) of Dunlop to a price p₁ chosen by Dunlop? = HEAD? (b) Find the Nash equilibrium of this game. (c) Which strategies are rationalizable (i.e., survive the process of iterated eliminati of strategies that are not best responses for any surviving play of the opponent,. (d) Suppose both firms choose prices p = p₂ = 2. Does this outcome Pareto dominate the Nash equilibrium?
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