Consider two firms that are choosing the price of competing products. The choices are contained in the payoff table. Each firm can raise price, lower price, or maintain their price. Suppose the game is played once each period forever. If both players play the strategy "always lower price" is this a Nash equilibrium? Let b = discount rate, 0

Consider two firms that are choosing the price of competing products. The choices are contained in the payoff table. Each firm can raise price, lower price, or maintain their price. Suppose the game is played once each period forever. If both players play the strategy "always lower price" is this a Nash equilibrium? Let b = discount rate, 0

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Economics
Consider two firms that are choosing the price of competing products. The choices are contained in the payoff table. Each firm can raise price, lower price, or maintain
their price. Suppose the game is played once each period forever. If both players play the strategy "always lower price" is this a Nash equilibrium? Let b = discount
rate, 0 < b <1.
Raise price
Maintain price
Lower price
Firm B
Raise price Maintain price Lower price
6. 4
8. 8
1.1
5, 5
4, 6
7.2
1.1
3.3
Firm A
2.7
No. because it is dominated by raising the price.
No, because it is dominated by both firms raising the price.
No, because it is dominated by maintaining the price.
Yes.

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