Question 2 Because of their market positions, Coles and Woolworths exhibit a great deal of interdependence and actively advertise against each other In particular, Coles has been successful with their Down Down campaign Briefly explain what this campaign is, and explain the effect you think it has had on the market position and profitability of both Coles and Woolworths Draw appropriate diagrams for this market showing the market outcomes for Coles and Woolworths (6 marks) Question 3 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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Question 2 Because of their market positions, Coles and Woolworths exhibit a great deal of interdependence and actively advertise against each other. In particular, Coles

Question 2

Because of their market positions, Coles and Woolworths exhibit a great deal of interdependence and actively advertise against each other. In particular, Coles has been successful with their "Down Down" campaign. Briefly explain what this campaign is, and explain the effect you think it has had on the market position and profitability of both Coles and Woolworths. Draw appropriate diagrams for this market showing the market outcomes for Coles and Woolworths. (6 marks)

Question 3

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)