3. Suppose that two clothing manufacturers, Lands' End and L.L. Bean, are deciding what price to charge for very similar field coats. The cost of producing these coats is $100. The coats are very close substitutes, so customers flock to the seller that offers the lowest price. If both firms offer identical prices, each receives half the customers. For simplicity, assume that the two firms have the choice of pricing at prices of $103, $102, or $101. The profit each firm would earn at various prices (Lands' Ends Profit, LL Bean's Profit) is shown in the payoff matrix below. $103 ($0, $200) ($150, $150) ($200, $0) ($100, $100) ($120, $0) ($120, $0) a. What is the Nash equilibrium and expected profits to LL Bean and Lands' End of this game? Lands' End LL Bean $102 $103 $102 $101 $101 ($0, $120) ($0, $120) ($50, $50) b. Suppose this is a mixed strategy game in which LL Bean has a 25% percent chance of choosing a price of $101, a 259 choosing price of $102, and a 50% chance of choosing $103, while Lands End has a 1/3 chance of choosing each strategy. What's the expected payoff to LL Bean? hance c. Suppose that in hopes of raising prices, L.L. Bean announces a price of $103 for its coat before Lands' End announces their prices. Do you think this strategic move will be successful for LL Bean? Explain.
3. Suppose that two clothing manufacturers, Lands' End and L.L. Bean, are deciding what price to charge for very similar field coats. The cost of producing these coats is $100. The coats are very close substitutes, so customers flock to the seller that offers the lowest price. If both firms offer identical prices, each receives half the customers. For simplicity, assume that the two firms have the choice of pricing at prices of $103, $102, or $101. The profit each firm would earn at various prices (Lands' Ends Profit, LL Bean's Profit) is shown in the payoff matrix below. $103 ($0, $200) ($150, $150) ($200, $0) ($100, $100) ($120, $0) ($120, $0) a. What is the Nash equilibrium and expected profits to LL Bean and Lands' End of this game? Lands' End LL Bean $102 $103 $102 $101 $101 ($0, $120) ($0, $120) ($50, $50) b. Suppose this is a mixed strategy game in which LL Bean has a 25% percent chance of choosing a price of $101, a 259 choosing price of $102, and a 50% chance of choosing $103, while Lands End has a 1/3 chance of choosing each strategy. What's the expected payoff to LL Bean? hance c. Suppose that in hopes of raising prices, L.L. Bean announces a price of $103 for its coat before Lands' End announces their prices. Do you think this strategic move will be successful for LL Bean? Explain.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question

Transcribed Image Text:3. Suppose that two clothing manufacturers, Lands' End and L.L. Bean, are deciding what price to charge for
very similar field coats. The cost of producing these coats is $100. The coats are very close substitutes, so
customers flock to the seller that offers the lowest price. If both firms offer identical prices, each receives half the
customers. For simplicity, assume that the two firms have the choice of pricing at prices of $103, $102, or $101.
The profit each firm would earn at various prices (Lands' Ends Profit, LL Bean's Profit) is shown in the payoff
matrix below.
a.
LL Bean
$102
$103
($150,
$103
($0, $200)
-A
$150)
Lands' End $102 ($200, $0)
($100, $100)
$101 ($120, $0)
($120, $0)
What is the Nash equilibrium and expected profits to LL Bean and Lands' End of this game?
$101
($0, $120)
($0, $120)
($50, $50)
b. Suppose this is a mixed strategy game in which LL Bean has a 25% percent chance of choosing a price
of $101, a 25% chance of choosing price of $102, and a 50% chance of choosing $103, while Lands End has
a 1/3 chance of choosing each strategy. What's the expected payoff to LL Bean?
c. Suppose that in hopes of raising prices, L.L. Bean announces a price of $103 for its coat before Lands'
End announces their prices. Do you think this strategic move will be successful for LL Bean? Explain.
Expert Solution

This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps

Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you


Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON

Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON


Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON

Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON

Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning

Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education