Question
If someone could answer this FRQ for me that would be great :) Two interdependent rideshare companies, Umlaut and Rise, are considering whether to advertise
If someone could answer this FRQ for me that would be great :)
Two interdependent rideshare companies, Umlaut and Rise, are considering whether to advertise in the region of their operations. Below is the relevant payoff matrix for their possible actions in terms of daily profit. Use it to answer the following questions.
Rise | |||
Advertise | Don't Advertise | ||
Umlaut | Advertise | $400, $500 | $650, $525 |
Don't Advertise | $450, $650 | $600, $500 |
(a) Does Umlaut have a dominant strategy? Explain.
(b) What market structure do Umlaut and Rise operate in? Explain.
(c) If Umlaut decides to advertise, what is the better price move for Rise?
(d) What might preserve the supernormal profits of Umlaut and Rise in the long run?
(e) What is the profit of each firm in any Nash equilibrium/equilibria?
(f) The advertising agency that both Umlaut and Rise use increases its ad rates by $75 per day. Draw a new payoff matrix to reflect this change.
(g) What are Umlaut's and Rise's dominant strategies (if any) after the advertising rate change?
i. Umlaut
ii. Rise
(h) If the firms do not cooperate after the advertising cost increase and act simultaneously, what will their new profits be?
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