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8: Game Theory and Oligopoly 1.5 The market for landfills is essentially a duopoly: Waste Management owns the largest number of landfills, and Republic Services
8: Game Theory and Oligopoly 1.5 The market for landfills is essentially a duopoly: Waste Management owns the largest number of landfills, and Republic Services owns the second-largest number. When municipalities put their trash-collecting contracts out to bid, Waste Management and Republic Services can submit either high bids or low bids. The payoff matrix shows how each company's hypothetical economic profit depends on its own bid and its competitor's bid. It is, of course, illegal for the two companies to enter into a price-fixing cartel to submit high bids, so rule out that possibility. a. If the companies bid on only one contract, what is the Nash equilibrium? What do the firms' managers think of this equilibrium? b. What is the cooperative equilibrium? If the companies bid repeatedly on different contracts, what can the managers do to reach the cooperative equilibrium? Republic Services Submit High Bid Submit Low Bid Submit $1.9 billion $2.1 billion High Bid $2.5 billion $1.0 billion Waste Management Submit $0.2 billion $0.4 billion Low Bid $3.7 billion $1.4 billion
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