Question 3

(a) Two petrol stations, Golden Oil and Sun Petroleum are located in the highway next to each other. Each of them is considering lowering the price of their petrol from $1.20 to $1 per litre to boost revenue, but is concerned that the other party will do the same.

The daily revenue to both stations, with and without a price cut, are shown in the payoff matrix below:

Raise lending rate Lower lending rate Raise $200111 for Bank A $100111 for Bank A lending $185111 for Bank B $165111 for Bank B rate $155111 for Bank A $350111 for Bank A $138111 for Bank B $280111 for Bank B Sun Petroleum Mamtam Price Lower $3,000 for Golden Oil $10,000 for Golden Oil Golden Price $2,000 for Sun Petroleum $1,000 for Sun Petroleum Oil Maintain $2,000 for Golden Oil $5,000 for Golden Oil Price $8,000 for Sun Petroleum $4,000 for Sun Petroleum