The airline industry is frequently used as an example of an oligopoly industry. Consider the following analytic problems: 1. Consider Air Train and BigJet, two airlines that currently fly non-stop flights on a route from Pittsburgh to Orlando. The airlines must (simultaneously) choose one of two possible flight times (9am or 4pm) in order to appeal to different customer groups. Demand is thin on this particular route so if they both choose the same flight time market price will be driven down (along with their expected payoffs). Assume that if they choose different times each can expect a payoff (net profit) of $10000 for the day. If the choose the same style, each will receive a payoff of only $5000. 2. illustrate the game in normal (matrix) form and find the pure strategy Nash equilibria. 3. How might the airlines coordinate? Would such a coordination strategy likely be sustainable? Why or why not? 4. Would your answer to (b) change if the payoff for being the only airline in flying at 9am was $20000, while being the only at 4pm remained $10000? 1. Air Train and Big Jet are considering starting nonstop service from Pittsburgh to Las Vegas. Assume that no other airlines serve this route. Market demand is such that if there is one airline serving the Pittsburgh to Las Vegas route the profit will be $20000. If two airlines serve the route, each will lose $5000. If an airline chooses not to enter this market, their profit is $0. 2. Illustrate the game in normal (matrix) form, if the decision must be made simultaneously. Find the pure strategy Nash equilibria. 3. Illustrate the game in extensive (tree) form, if the decision is made sequentially, with Air Train moving first. Find the two pure strategy Nash equilibria. Find the subgame perfect (backwards induction) equilibrium. 4. Before Air Train makes their decision, the CEO of BigJet publicly announces that regardless of Air Train's decision, she will enter this market. If Air Train believes that Big Jet will follow through with their threat, what is Air Train's best strategy? Is BigJet's threat to 'enter no matter what' credible? Why or why not?