A case study in the chapter describes a phoneconversation between the presidents of AmericanAirlines and Braniff Airways. Let’s analyze thegame between the two companies. Suppose thateach company can charge either a high price fortickets or a low price. If one company charges $300,it earns low profit if the other company also charges$300 and high profit if the other company charges$600. On the other hand, if the company charges $600,it earns very low profit if the other company charges$300 and medium profit if the other company alsocharges $600.a. Draw the payoff matrix for this game.b. What is the Nash equilibrium in this game?Explain.c. Is there an outcome that would be better than theNash equilibrium for both airlines? How could itbe achieved? Who would lose if it were achieved?
A case study in the chapter describes a phone
conversation between the presidents of American
Airlines and Braniff Airways. Let’s analyze the
game between the two companies. Suppose that
each company can charge either a high
tickets or a low price. If one company charges $300,
it earns low profit if the other company also charges
$300 and high profit if the other company charges
$600. On the other hand, if the company charges $600,
it earns very low profit if the other company charges
$300 and medium profit if the other company also
charges $600.
a. Draw the payoff matrix for this game.
b. What is the Nash equilibrium in this game?
Explain.
c. Is there an outcome that would be better than the
Nash equilibrium for both airlines? How could it
be achieved? Who would lose if it were achieved?
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