Question
Two firms are in the detergent market. Each can choose to ask a highprice or a low price. Resulting profits are given by the following
Two firms are in the detergent market. Each can choose to ask a highprice or a low price.
Resulting profits are given by the following matrix:
Firm 1 / Firm 2 low high
low 50 ,50 200, 0
high 0, 200 80, 80
a.Consider the simultaneous game where Firm 1 (the row player) and Firm 2 (the column player) decide on the price at the same time .
Using the Method 2; show that (LOW,LOW) is a Nash Equilibrium (no player gets better off by unilateral deviation), and next show that (HIGH,HIGH) is not a Nash Equilibrium (one of the player gets better off by unilateral deviation).
b.Show that which one is Pareto Optimal and which one is not. Discuss briefly the trade-off between efficiency and equilibrium.
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Financial Reporting And Analysis
Authors: Lawrence Revsine, Daniel Collins
5th Edition
0078110866, 978-0078110863
