Answered: Suppose that each company can charge…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter24: Price-searcher Markets With High Entry Barriers

Section: Chapter Questions

Problem 12CQ

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answer the ff: Suppose that each company can
charge either a high price for tickets or a low price. If
one company charges $300, it earns low profit if the
other company also charges $300 and high profit if
the other company charges $600. On the other hand,
if the company charges $600, it earns very low profit if
the other company charges $300 and medium profit
if the other company also charges $600.
a. Draw the decision box for this game.
b. What is the Nash equilibrium in this game?
Explain.
c. Is there an outcome that would be better than the
Nash equilibrium for both airlines? How could it
be achieved? Who would lose if it were achieved?

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