V3

Celebrity chef and Instagram sensation Salt Bae opened a branch of his ultra-expensive steakhouse chain Nusr-Et right here in Dallas in 2021. Capitalizing on Salt Bae's newfound fame, Nusr-Et is known more for its ultra-high prices and over-the-top atmosphere than it is for the quality of its steaks. Case in point, any steak on the restaurant's menu can be dusted in 24-carat gold - but only for those willing and able to put up the cash. Witnessing the incredible success of Nusr-Et, another enterprising Dallasite, who calls himself Dr. Diamond, has decided to get in on the super-expensive steak game. While no one can match Salt Bae's suave flair, the new steakhouse is capitalizing on its homegrown Dallas cred and going over the top offering customers the option to have their steak carved with a knife made of diamonds by none other than Dr. Diamond himself. Much to his dismay, Salt Bae's new competitor looks like he could take much of the Dallas market of "Big Spenders" for over-the- top steaks. a. Do you think the market for over-the-top steaks in Dallas is likely to be better characterized by the Cournot or Bertrand model? Explain your answer (5 pts). b. Provide at least two plausible reasons why this market is likely to be profitable even if characterized by Bertrand. Explain your answer (5 pts). As competition ramps up between Salt Bae and Dr. Diamond, both entrepreneurs are planning major promotional events to bring even more attention to their establishments. Salt Bae is flying in his favorite DJ from Berlin and will be personally carving gold crusted tomahawk steaks for all of the celebrities in attendance. Further building his Dallas cred, Dr. Diamond's soiree will feature the music of Dallas's own Leon Bridges, and Dr. Diamond will be using his famous diamond clad carving knife to personally carve steaks for all members of the Dallas Cowboys. These will be nights to remember! Both over-the-top steak purveyors are trying to decide whether to hold their big event in October or November, and both understand that the profits from additional publicity from these over-the-top events are as follows: $1.5M if you hold the only event in October, $1M if you hold the only event in November, $750K each if both hold the event in October, and $500K each if both hold the event in November. c. Write out the game and solve for all pure strategy Nash Equilibria if both steak purveyors must choose dates simultaneously (10 pts). d. Write out the game and solve for the subgame perfect equilibrium if Dr. Diamond has the chance to choose a date for his soiree first (5 pts)