MULT-UB 5 Lecture Notes - Lecture 3: Power (2014 Kannada Film), Costco, Spotify
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Recall the variant of the pizza pricing game in Exercise U2, part (b) in Chap
11, in which one store (Donna's Deep Dish) was much larger than the
other (Pierce's Pizza Pies). The payoff table for that version of the game is:
pierce's pizza pies | pierce's pizza pies | ||
high | low | ||
Donna's Deep Dish | high | 156, 60 | 132, 70 |
Donna's Deep Dish | low | 150, 36 | 130,50 |
The noncooperative dominant-strategy equilibrium is (High, Low),
yielding profits of 132 to Donna's and 70 to Pierce's, for a total of 202. If the
two could achieve (High, High), their total profit would be 156 + 60 = 216,
but Pierce's would not agree to this pricing.
Suppose the two stores can reach an enforceable agreement whereby both
charge High and Donna's pays Pierce's a sum of money. The alternative to this
agreement Js ·simpJy the noncooperative dominant-strategy equmbrium.They bargain over this agreement, and Donna's has 2.5 times as much bargainingpower as Pierce's. In the resulting agreement, what sum will Donna'spay to. Pierce's?
Suppose the two stores can reach an enforceable agreement whereby both
charge High and Donna's pays Pierce's a sum of money. The alternative to this
agreement Js ·simpJy the noncooperative dominant-strategy equmbrium.
They bargain over this agreement, and Donna's has 2.5 times as much bargaining
power as Pierce's. In the resulting agreement, what sum will Donna's
pay to. Pierce's?