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Consider a game between Coles and Woolworths that the supermarkets may participate in. The rules of the game are: If both Coles and Woolworths keep
Consider a "game" between Coles and Woolworths that the supermarkets may participate in. The rules of the game are: If both Coles and Woolworths keep prices low, then they will both make a profit of $5,000m. If both Coles and Woolworths keep prices high, then they will both make a profit of $8,000m. If one supermarket keeps prices low and the other keeps prices high, then the low price supermarket will make $9,000m profit and the high price supermarket will make $4,500m profit. Using these rules, solve this game for the Nash equilibrium (make sure to include your diagram and the logic you followed to solve the game). Is your outcome the best one for both Coles and Woolworths? Explain your answer. (8 marks)
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