- Two firms (A and B) compete in the wireless services industry. Each firm has two possible strategies: “High Price” or “Low Price”. The payoffs associated with the different strategies are described below.
| Firm B | |||||
| High Price | Low Price | ||||
|
Firm A |
High Price |
$10 million (Firm A) |
$10 million (Firm B) |
-$4 million (Firm A)
|
$8 million (Firm B)
|
| Low Price |
$8 million (Firm A) |
-$4 million (Firm B)
|
$4 million (Firm A)
|
$4 million (Firm B)
|
|
- Identify, if any, the dominant strategy or dominant strategies for Firm A and Firm B. (5 points)
- What is/are the Nash equilibrium or equilibria in this game, if any? How did you determine the Nash equilibrium or equilibria? (5 points)
- Two firms (A and B) compete in the tablets industry. Each firm has two possible strategies: “low price” or “high price”. PAand PB are the probabilities attached to the strategy “low price” for Firm A and Firm B. (1 – PA) and (1 – PB) are the probabilities attached to strategy “high price” for Firm A and Firm B.
| Firm B | ||||
| Low price | Low price | |||
| Firm A | Low price | (10,-10) | (-10,10) | PA |
| High price | (-10,10) | (10,-10) | 1 – PA | |
| PB | 1 – PB | |||
- What is/are the pure strategy Nash equilibrium (or equilibria)? (5 points)
- Is there a mixed strategy Nash equilibrium? (5 points)
- Some time ago, conservation groups provided compensation ranchers in Wyoming to move their herds away from wild buffalo herds so that the buffalo would not have to compete with the cattle for food.
Explain how the Coase Theorem may be relevant in this case.
- Situation 1
Robert wants to buy a certain type of used car. Paula owns this type of used car. Paula claims that her car is of excellent quality. She knows the real condition of her used car. In fact, her car is not in good condition. Robert does not have any knowledge in automobile mechanics and thus does not know whether Paula’s car is in excellent condition or not. Robert is risk neutral. Robert is willing to buy a used car in a good condition at $17,000 and used car in less than a good condition at $8,000. Paula makes an offer to Robert for $12,000. Since her car is in less than a good condition, she would be willing to sell it to Robert or anybody else for $6,000.
- Will Robert accept her offer? Why? Why not? (5 points)
- What is the maximum price at which Robert would buy Paula’s car? (5 points)
Situation 2
Compared to Situation 1, Situation 2 is characterized by full information. Robert knows what Paula knows and vice versa.
- What price would Robert be willing to pay for Paula’s car? (5 points)
- Why is Situation 1 an example of market failure? (5 points)
Problem Set #3
APA
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The post Two firms (A and B) compete in the wireless services industry. Each firm has two possible strategies: “High Price” or “Low Price”. The payoffs associated with the different strategies are described below. Firm B High Price Low Price Firm A High Price $10 million (Firm A) $10 million (Firm B) -$4 million (Firm A) $8 million (Firm B) Low Price $8 million (Firm A) -$4 million (Firm B) $4 million (Firm A) $4 million (Firm B) Identify, if any, the dominant strategy or dominant strategies for Firm A and Firm B. (5 points) What is/are the Nash equilibrium or equilibria in this game, if any? How did you determine the Nash equilibrium or equilibria? (5 points) appeared first on Apax Researchers.
