The airline industry is frequently used as an example of an oligopoly industry. Consider the following...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
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? 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?
Expert Answer:
Answer rating: 100% (QA)
Lets address each of the analytical problems one by one Problem 1 Normal Matrix Form The payoff matrix for this simultaneousmove game is as follows Ai... View the full answer
Related Book For
Global Marketing management
ISBN: 978-0470505748
5th edition
Authors: Masaaki Kotabe, Kristiaan Helsen
Posted Date:
Students also viewed these general management questions
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
In the Hollywood movie A Beautiful Mind, Russel Crowe plays John Nash who developed the Nash Equilibrium concept in his PhD thesis at Princeton University. In one of the early scenes of the movie,...
-
Consider again the Battle of the Sexes game described in exercise 24.4. Recall that you and your partner have to decide whether to show up at the opera or a football game for your date with both of...
-
PWX Inc. has the following information for its years ended June 30: Required: Calculate the accounts receivable turnover and average collection period for 20X3 and 20X2. Comment on the trend. What...
-
Mega Manufacturing produces wooden chairs. The cutting department produces all of the component parts and transfers the parts to the assembly department. The assembly department had no work in...
-
What is the aged trial balance for accounts receivable? How could the auditor use it in the audit process?
-
What should the new employee do?
-
The bakery produces tea cakes. It uses a process costing system. In March, its beginning inventory was 450 units, which were 100 percent complete for direct materials costs and 10 percent complete...
-
For each of the following statements, circulate the correct answer. 1 - Copyrights should be amortized over a . their legal life. b . the life of the creator plus fifty years. c . twenty years. d ....
-
Many processor architectures have a load with post-increment instIt is not possible to implement this instruction without either modifying the register file (adding another write port) or making the...
-
Truck and Trailer. You recently were hired as a Logistics Specialist for a Warehouse. Your manager, who just purchased a new pickup truck - Chev Silverado 1500 and utility trailer approaches you and...
-
Determine the exact (hkl) for the plane drawn. The plane is drawn inside the unit cell. (2 pts) X Z Y
-
1.Explain the nature of Strategic Cost Management, its use and purpose in the business. 2.How is it different from Cost Accounting and Management Accounting. 3.Explain how Strategic Cost Management...
-
Two 1 kg balls move away from each other, one traveling 5 m/s to the right, the other 10 m/s to the left. What is the magnitude of the total momen- tum of the system? Answer in units of kg m/s.
-
John enterprise sells the truck purchased in January of 2019 for $10,000. Tip: Remember to make required depreciation entries for the first 11 mos of 2022. Date Purchased:1/1/19 Purchase cost: 32,000...
-
BSA Company has provided you with the following information: Raw materials purchased P135,000; Raw materials inventory beginning balance P100,000; Raw materials inventory ending balance P175,000;...
-
The following are the financial statements of Parker Company for the year ended December 31, 2023 All sales were on credit PARKER COMPANY Balance Sheet December 33, 2823 Liabilities and Equity Assets...
-
In a large midwestern university, 30% of the students live in apartments. If 200 students are randomly selected, find the probability that the number of them living in apartments will be between 55...
-
MNCs tend to move more and more towards a sprinkler strategy in terms of their global launch timing decisions. What forces lie behind this trend?
-
In many countries, the Internet infrastructure is far less sophisticated than in the United States. Phone lines are of poor quality. Transmission rates are slow. What does poor infrastructure imply...
-
Explain the notion of cost transparency in the context of the Internet. What possible solutions can help marketers cope with the problem?
-
Use of mean and standard deviation The Oyster Pearl Restaurant is popular with sea- food fanciers who like its large variety of oyster dishes. The oysters are a high-profit item but sales fluctuate...
-
Central tendency and dispersion Vixen Valve Works has been producing a new mechani- cal gas valve on two automated production lines in a pilot plant. Each production line was acquired from a...
-
Use of means and standard deviations Kosh Tour Travel Agency uses two 70-passenger buses for its organized tours. Daily revenues vary considerably on the Devil's Hole tour and appear to be much more...
Study smarter with the SolutionInn App