Question
Supposetwo department stores, Kmart and Big W,can sell a computer game atlow or high prices. The potential profit for the different strategies isshown inthe matrixbelow.
Supposetwo department stores, Kmart and Big W,can sell a computer game atlow or high prices. The potential profit for the different strategies isshown inthe matrixbelow.
K Mart | |||
K mart charges a high price | K Mart charges a low price | ||
Big W | Big W charges a high price | K Mart earns 200,000profit; Big W earns 200,000profit | K Mart earns300,000profit; Big W earns 50k profit |
Big W charges a low price | K Mart earns 50,000profit; Big W earns 300,000profit | K Mart earns 100,000profit; Big W earns 100,000profit |
(a) What is the dominant strategyfor the above matrix(i.e.,a Nash equilibrium)?Explain briefly.(3marks) (b)If the two storescould collude, what would be their likely strategy?Explain briefly(3marks) (c)Briefly explainthe principles of the 'kinked'demand curveby using an example such as pricing a product by the two supermarket giants
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