c. Two airline companies decide to engage in collusive behaviour. Analyse the game between two such companies. Suppose that each company can charge either a high price for tickets or a low price. If one company charges €100, it earns low profits if the other company charges €100 also, and high profits if the other company charges €200. On the other hand, if the company charges €200, it earns very low profits if the other company charges €100, and medium profits if the other company charges €200 also. (i) Draw the payoff matrix for this game. Airline A's Decision Low Price High Price Low Price Airline A Airline A Airline B's Decision (ii) What is the Nash equilibrium in this game? Explain. Airline B Airline B High Price Airline B Airline A Airline A Airline B (iii) If a group of sellers could form a cartel, what quantity and price would they try to set?

c. Two airline companies decide to engage in collusive behaviour. Analyse the game between two such companies. Suppose that each company can charge either a high price for tickets or a low price. If one company charges €100, it earns low profits if the other company charges €100 also, and high profits if the other company charges €200. On the other hand, if the company charges €200, it earns very low profits if the other company charges €100, and medium profits if the other company charges €200 also. (i) Draw the payoff matrix for this game. Airline A's Decision Low Price High Price Low Price Airline A Airline A Airline B's Decision (ii) What is the Nash equilibrium in this game? Explain. Airline B Airline B High Price Airline B Airline A Airline A Airline B (iii) If a group of sellers could form a cartel, what quantity and price would they try to set?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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