Suppose QM Phones and UCL Phones each develop their own versions of a new smartphone. The new phones are different from the existing ones but each share similar functions and designs. The firms are trying to decide on the price of their unique phones. If they both charge high price, QM makes £6 million and UCL makes £5 million economic profits. If QM charges high price but UCL charges low price, they make £3 million and £7 million respectively. If however QM charges low price and UCL charges high price, they make £ £8 million and £1 million respectively. If both charge low price, QM earns £4 million and UCL earns £3 million economic profits. a) Describe the strategies in the game. Construct the payoff matrix. b) Does QM have a dominant strategy. Does UCL have a dominant strategy? Explain. c) If the game is played only once what is the equilibrium? Is it a dominant-strategy equilibrium? Explain. d) Is there a Nash equilibrium? Explain. What is the best outcome for either of the firms? Explain.

Suppose QM Phones and UCL Phones each develop their own versions of a new smartphone. The new phones are different from the existing ones but each share similar functions and designs. The firms are trying to decide on the price of their unique phones. If they both charge high price, QM makes £6 million and UCL makes £5 million economic profits. If QM charges high price but UCL charges low price, they make £3 million and £7 million respectively. If however QM charges low price and UCL charges high price, they make £ £8 million and £1 million respectively. If both charge low price, QM earns £4 million and UCL earns £3 million economic profits. a) Describe the strategies in the game. Construct the payoff matrix. b) Does QM have a dominant strategy. Does UCL have a dominant strategy? Explain. c) If the game is played only once what is the equilibrium? Is it a dominant-strategy equilibrium? Explain. d) Is there a Nash equilibrium? Explain. What is the best outcome for either of the firms? Explain.

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Oligopoly

Section: Chapter Questions

Problem 9PA

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