Only two commercial airlines fly from an airport: Alice Airline and Bob Airline. They fly the same
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Only two commercial airlines fly from an airport: Alice Airline and Bob Airline. They fly the same route at the same time. It costs each only $100 per passenger to fly, no matter how many passengers they fly. The government requires that Alice announce her price and then lets Bob follow her in naming his price. Alice cannot collude with Bob nor can either change the price once it is announced. Assuming customers have no brand loyalty (that is, they will buy from whoever has the lowest price), what is Alice’s optimal strategy?
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Whoever charges the lowest price gets all th...View the full answer
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