Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A new minor league baseball stadium is opening soon and the owner is only allowing local, family-owned restaurants to sell within the park. Two hotdog

A new minor league baseball stadium is opening soon and the owner is only allowing local, family-owned restaurants to sell within the park. Two hotdog vendors are set to sell within the stadium: (i) The HOT Dog and (ii) Ballpark Frankies. The Baseball park necessitates that the vendors set their prices at the beginning of each season and then hold the price constant during the games that occur that season. The fans are not sensitive to the quality of the hotdog, just the price.

The two vendors have every inclination to stay in the ballpark for the life of their firms, so imagine that this will be an infinitely repeated game. Based on relative prices, the potential payoffs for the season are listed below:

The HOT DogBallpark FrankiesLow PriceHigh PriceLow Price$10,000 , $10,000$90,000 , -$3,000High Price-$3,000 , $90,000$20,000 , $20,000

Given the high current interest rate of 10%, The HOT Dog is considering to post a high price in the inaugural season and hope that Ballpark Frankies follows as well with a high price of their own. Evaluate if this is a risky strategy for The HOT Dog.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Macroeconomics Principles Applications And Tools

Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez

7th Edition

978-0134089034, 9780134062754, 134089030, 134062752, 978-0132555234

More Books

Students also viewed these Economics questions

Question

=+ 5. Beleaguered State Bank (BSB) holds $250 million

Answered: 1 week ago