c. Two airline companies decide to engage in collusive behaviour. Analyse the game between two such companies. Suppose that each company can charge either a high price for tickets or a low price. If one company charges €100, it earns low profits if the other company charges €100 also, and high profits if the other company charges €200. On the other hand, if the company charges €200, it earns very low profits if the other company charges €100, and medium profits if the other company charges €200 also. (i) Draw the payoff matrix for this game. Airline A's Decision Low Price High Price Low Price Airline A Airline A Airline B's Decision (ii) What is the Nash equilibrium in this game? Explain. Airline B Airline B High Price Airline B Airline A Airline A Airline B (iii) If a group of sellers could form a cartel, what quantity and price would they try to set?

c. Two airline companies decide to engage in collusive behaviour. Analyse the game between two such companies. Suppose that each company can charge either a high price for tickets or a low price. If one company charges €100, it earns low profits if the other company charges €100 also, and high profits if the other company charges €200. On the other hand, if the company charges €200, it earns very low profits if the other company charges €100, and medium profits if the other company charges €200 also. (i) Draw the payoff matrix for this game. Airline A's Decision Low Price High Price Low Price Airline A Airline A Airline B's Decision (ii) What is the Nash equilibrium in this game? Explain. Airline B Airline B High Price Airline B Airline A Airline A Airline B (iii) If a group of sellers could form a cartel, what quantity and price would they try to set?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 8MC

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A case study in the chapter describes a phoneconversation between the presidents of AmericanAirlines and Braniff Airways. Let’s analyze thegame between the two companies. Suppose thateach company can charge either a high price fortickets 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 alsocharges $600.a. Draw the payoff matrix for this game.b. What is the Nash equilibrium in this game?Explain.c. Is there an outcome that would be better than theNash equilibrium for both airlines? How could itbe achieved? Who would lose if it were achieved?
4. Using a payoff matrix to determine the equilibrium outcome Suppose that Flashfry and Warmbreeze are the only two firms in a hypothetical market that produce and sell air fryers. The following payoff matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for fryers. Flashfry Pricing High Low Warmbreeze Pricing High Low 11, 11 2,13 13, 2 10, 10 For example, the lower-left cell shows that if Flashfry prices low and Warmbreeze prices high, Flashfry will earn a profit of $13 million, and Warmbreeze will earn a profit of $2 million. Assume this is a simultaneous game and that Flashfry and Warmbreeze are both profit-maximizing firms. price, and if Flashfry prices low, Warmbreeze will make more profit if it If Flashfry prices high, Warmbreeze will make more profit if it chooses a chooses a price. If Warmbreeze prices high, Flashfry will make more profit if it chooses a chooses a price. Considering all of the…
4. Consider the following Pricing game. Firms A and B each has two strategies: to charge Low or High price. The following table shows the payoffs for all possible outcomes: Firm B Pricing Strategy Low High Low Firm A 0,0 -200, 400 High 400, -200 100, 100 Suppose that Firms A and B are going to play this game over and over again, forever. Also, suppose both firms agree on the following collusive plan: "We will each charge the high price, provided neither of us has ever charged the low price in any previous period. If one of us cheats and charges the low price, the other player will charge the low price in every period thereafter." Answer the following questions about this infinitely repeated game:
What an oligopoly is? Explain in details. Solve the following problem: Assume that two airline companies decide to engage in collusive behaviour. Let’s analyse the game between two such companies. Suppose that each company can charge either a high price for tickets or a low price. If one company charges €100, it earns low profits if the other company charges €100 also, and high profits if the other company charges €200. On the other hand, if the company charges €200, it earns very low profits if the other company charges €100, and medium profits if the other company charges €200 also. 1. Draw the decision box for this game. 2. What is the Nash equilibrium in this game? Explain. 3. 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?
II.2 Companies A and B can compete on advertising or R&D. The profits (in millions of $ million) of the two firms are given in the table below assumig that they play a one-shot simultancous mov game (the profit or firm A is listed first in every cell of the matrix, followed by the profit of firm B): Advertising R&D 50, 25 10, 70 20, 40 60, 35 1. Find the mixed strategy equilibrium. A\B Advertising R&D 2. What are the expected profits for both firms in this equilibrium?
Samsung Expensive Cheap Apple Expensive Cheap 2,6 3,3 4,4 6,2 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? Both firms earn $4 billion. Samsung earns $2 billion and Apple earns $6 billion. Samsung earns $6 billion and Apple earns $2 billion. Both firms earn $3 billion.
Consider a situation where two firms, 1 and 2, compete by choosing prices simultaneously. Theycan either compete (charge a low price) or cooperate (collude, charging a high price). The firmsplay this competition game repeatedly and indefinitely, using a grim trigger strategy toincentivize cooperation. They use the same interest rate, i, to discount future payoffs. Payoffsare $4,050 when both firms cooperate and $3,600 when they compete. If one firm charge a lowprice while the other charges a high price, the firm charging the low price gets $7,200, and theother gets zero, but now assume there is a 10% chance that aregulatory agency will give both firms a $1,500 fine in each period if they are caught colluding.Find the condition on the interest rate, i , necessary for sustaining the cooperative equilibrium.Which of the following statements is correct?(a) For any i < 1/7 the firms will cooperate.(b) For any i < 1/11 the firms will cooperate.(c) For any i > 1/11 the firms will…
10:04 PM cb = Chegg Economics Vo LTE expert.chegg.com/expertqna Time remaining: 00:09:49 Consider the following payoff matrix for two oligopolists that are deciding what quantity to produce: Firm 2 High Quantity Low Quantity $70k; $70k $130k; $20k High Quantity Firm 1 $20k; $130k $100k; $100k Low Quantity In the Nash equilibrium of this game, what are the payoffs to each firm? O a. Firm 1 receives $130k and Firm 2 receives $20k. O b. Firm 1 receives $20k and Firm 2 receives $130k. O c. Firm 1 receives $100k and Firm 2 receives $100k. O d. Firm 1 receives $70k and Firm 2 receives $70k. Answer Skip 4G Exit 2 ¹20%
Barnes and Nobel and Amazon are the two largest online book retailers in the U.S.. The two companies compete in the online market for‘Harry Potter and the Sorcerer’s Stone’, a famous book by the English author J. K. Rawling. Both companies can buy copies of the bookfrom Scholastic at $8 per copy and have an additional average cost $1 per copy.Use game theoretical concepts to explain why, even if the two companies have significant market power, on most days they both sell the bookat $9 per copy.
Player 2 X Y Player X (3,3) (0,4) 1 Y (4,0) (2,2) Figure 9.18 Find all the subgame perfect Nash equilibria of this supergame. Also, briefly explain why each one is subgame perfect.
Suppose there are two computer companies, Bippo and Macrohard, who choose from one of two incompatible CPU frame technologies, Chip A and Chip I. The payoff matrix is, Macrohard Chip A Chip I Assume positive payoff Chip A 5+x, 7+y 8, 10 Chip I 10, 8 4+a, 4+b Bippo Find the range of x, y, a, b to make (Chip A, Chip A) a unique Nash equilibrium. Find the range of x, y, a, b to lead to an agreement on compatibility that two firms only choose Chip I. Find the range of x, y, a, b that two firms start a standard war. Suppose x=5, y-0, b-3, find the range of a to make a scenario of asymmetric firms. а. b. с. d.
Suppose there are only two firms that sell smartphones: Flashfone and Pictech. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its phones. Pictech Pricing High Low Flashfone Pricing High 11, 11 2, 18 Low 18, 2 10, 10 For example, the lower-left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $18 million, and Pictech will earn a profit of $2 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. If Flashfone prices high, Pictech will make more profit if it chooses a (HIGH OR LOW) price, and if Flashfone prices low, Pictech will make more profit if it chooses a (HIGH OR LOW) price. If Pictech prices high, Flashfone will make more profit if it chooses a (HIGH OR LOW) price, and if Pictech prices low, Flashfone will make more profit if it chooses a (HIGH OR LOW)…