• You really need to look at exhibits 1, 2 and 3.
• 1.Given the information would you predict that Sony or Microsoft would want to reduce console prices by $100. Use a 2 by 2 shot simultaneous game to analyze this situation. Assume Nintendo is just looking in but does not act.
• 2.Assume that demand curves are all linear. Calculate the own price point elasticities of demand implied by the data at prices of $299 and $399 for both Sony and Microsoft. Are your answers consistent with your understanding of short run profit maximization for firms with market power?
• 3.Can you think of reasons why these firms would be particularly aggressive in pricing their consoles?