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Suppose two {2] department stores, Kmart and Big W, can sell a computer game at low or high prices. The potential prot for the different
Suppose two {2] department stores, Kmart and Big W, can sell a computer game at low or high prices. The potential prot for the different strategies is shown in the matrix below. K Mart K mart charges a high price K Mart charges a low price K Mart earns 200,000 prot; K Mart earns 300,000 prot: Big W charges a high price Big W earns 200.000 prot Big W earns 50, 000 prot . K Mart earns 50,000 prot: K Mart earns 100,000 prot: Big W . . Big W charges a low price Big W earns 300,000 prot Big W earns 100,000 prot {a} What is the dominant strategy (Le. a Nash equilibrium) for the above matrix? Explain briey. {3 marks} {b} If the two (2) stores could collude, what would be their likely strategy? Explain briey. {3 marks) {c} (This sub-question is not related to the above questions.) Briey explain the principles of the 'kinked' demand curve by using an example such as pricing a product by the two supermarket giants. (4 marks)
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