Question
(a) The table below shows the payoff matrix in terms of profit for two stalls, A and B, with two pricing strategies, high price and
(a) The table below shows the payoff matrix in terms of profit for two stalls, A and B, with two pricing strategies, high price and low price.
Stall B | |||
High Price | Low Price | ||
Stall A | High Price | $20m for Stall A $8.5m for Stall B | $30m for Stall A $6.5m for Stall B |
Low Price | $7.5m for Stall A $50m for Stall B | $25m for Stall A $40m for Stall B |
Solve for the Nash equilibrium and explain whether this game is a prisoner's dilemma game.
(b) If the game becomes a sequential game where Stall A gets to move first, construct a decision tree diagram and solve the game using roll-back method. Explain your answers
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