Nash equilibrium given that differentiated products are sold.

Question

Want to see the full answer?

Answer 1

Question

Chapter 14, Problem 9P

(a)

To determine

Nash equilibrium given that differentiated products are sold.

(b)

To determine

Equilibrium when firms decide to collude and have the same price.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Pfizer and a competitor, Astra-Zeneca, are considering developing a new drug for a particular illness at the same time. The illness is relatively rare but the fixed cost of production is very high. In particular, the forecast demand for such a drug is insufficient to cover both firms’ costs. Analyse the interaction between the two firms using game theory. Present a payoff matrix to model the situation and analyse it for Nash equilibrium. What can either of these firms do to make their best, most- preferred outcome more likely?

There are two firms in an industry, Firm A and Firm B. If firm A and firm B both advertise, they each will earn $5 million in profits. If neither firm advertises, they will each earn $10 million in profits. However, if one firm advertises and the other does not, the firm that advertises will earn $15 million and the non-advertising firm will earn $1 million. List all Nash equilibrium to this game. Both firms advertise Firm A advertises and Firm B does not Firm B advertises and Firm B does not Neither firm advertises No Nash equilbrium exists

Apple and Samsung control the majority of the Smart Phones. Suppose the diagram above represents their strategic options, either to offer an expensive or a cheap phone in the market. If both firms offer an expensive phone, they will each earn 4 billion dollars. If Samsung offers a cheap phone, while Apple offers only an expensive phone, Samsung will earn $6 billion and Apple will earn $2 billion, and vice versa. If they both offer a cheap phone, they will each earn $3 billion. What are the profits in the Nash Equilibrium? a. Samsung earns $2 billion and Apple earns $6 billion. b. Both firms earn $3 billion. c. Both firms earn $4 billion. d. Samsung earns $6 billion and Apple earns $2 billion.