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Profits as functions of… Show more Two firms compete in pr

Paper help Economics Profits as functions of… Show more Two firms compete in pr

Economics

Profits as functions of… Show more Two firms compete in pr

Profits as functions of… Show more Two firms compete in prices. Each firm can set a high price or a low price. Profits as functions of prices are given by the following payout matrix: Low High Low (70;70) (120;0) High (0;120) (100;100) where the first value is Firm 1’s prot and the second value Firm 2’s profit. (a) Are there dominant strategies? What is the Nash Equilibrium of the game? (b) Suppose now that each firrm offers its customers a lowest price guaran- tee: if firm 2 offers a price lower than firm 1, then firm 1’s customers are entitled to buy from firm 1 at the same price, even if firm 1 had initially set a high price; and similarly for firm 2’s customers if firm 1 offers a price lower than firm 2. How do lowest price guarantees change the game? (c) What is the equilibrium of the new game? Is a lowest price guarantee convenient for consumers? • Show less

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