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8 Feb 2019
The following matrix shows strategies and payoffs for two firms that must decide how to price.
Firm 2 Price High Price Low Firm 1 Price high 400, 400 -50, 700 Price Low 700,-50 100, 100
Entrant Enter Don't enter Monopolist Price High 20, 10 50, 0 Price Low 5, -10 10, 0
A) Is the monopolistâs threat to charge a low price credible? That is, if the entrant has come in, would it make sense for the monopolist to charge a low price? Explain.
b. What is the Nash equilibrium of this game?
c. How could the monopolist make the threat to fight credible?
The following matrix shows strategies and payoffs for two firms that must decide how to price.
Firm 2 | |||
Price High | Price Low | ||
Firm 1 | Price high | 400, 400 | -50, 700 |
Price Low | 700,-50 | 100, 100 |
Entrant | |||
Enter | Don't enter | ||
Monopolist | Price High | 20, 10 | 50, 0 |
Price Low | 5, -10 | 10, 0 |
A) Is the monopolistâs threat to charge a low price credible? That is, if the entrant has come in, would it make sense for the monopolist to charge a low price? Explain.
b. What is the Nash equilibrium of this game?
c. How could the monopolist make the threat to fight credible?
Jean KeelingLv2
9 Feb 2019