2.4 Express Scripts and CVS/Caremark are the two largest pharmacy benefits managers (PBMs).

Companies hire a PBM to handle the prescription drug component of their health plans. Express Scripts and CVS/Caremark bid on these contracts.

They can either submit a high bid or submit a low bid. The payoff matrix shows how each company’s hypothetical economic profit depends on its own bid and the bid by its competitor. A price-fixing cartel to submit only high bids is illegal.

a. Is there a pure-strategy Nash equilibrium? If so, what is it? Explain your answer.

b. Is there a mixed-strategy Nash equilibrium?
If so, what is it? Explain your answer.

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CVS/Caremark Express Scripts Submit High Bid Submit $4 billion High Bid $2 billion Submit Low Bid $0 50 $5 billion Submit Low $3 billion $2 billion. Bid $1 billion $2 billion