Consider whether the promises and threats made toward each other by duopolists and oligopolists are always credible (believable). Look at the figure below. Imagine that the two firms will play this game twice in sequence and that each firm claims the following policy. Each says that if both it and the other firm choose the high price in the first game, then it will also choose the high price in the second game (as a reward to the other firm for cooperating in the first game). RareÃir's price strategy High Low $12 $15 A B High $12 $6 $6 $8 Low $15 $8 a. As a first step toward thinking about whether this policy is credible, consider the situation facing both firms in the second game. If each firm bases its decision on what to do in the second game entirely on the payouts facing the firms in the second game, which strategy will each firm choose in the second game? (Click to select) b. Now move one step back. Imagine that it is the start of the first game and each firm must decide what to do during the first game. Given your answer to a, is the publicly stated policy credible? (Hint: No matter what happens in the first game, what will both firms do in the second game?) (Click to select) c. Given your answers to a and b, what strategy will each firm choose in the first game? (Click to select) Uptown's price strategy
Consider whether the promises and threats made toward each other by duopolists and oligopolists are always credible (believable). Look at the figure below. Imagine that the two firms will play this game twice in sequence and that each firm claims the following policy. Each says that if both it and the other firm choose the high price in the first game, then it will also choose the high price in the second game (as a reward to the other firm for cooperating in the first game). RareÃir's price strategy High Low $12 $15 A B High $12 $6 $6 $8 Low $15 $8 a. As a first step toward thinking about whether this policy is credible, consider the situation facing both firms in the second game. If each firm bases its decision on what to do in the second game entirely on the payouts facing the firms in the second game, which strategy will each firm choose in the second game? (Click to select) b. Now move one step back. Imagine that it is the start of the first game and each firm must decide what to do during the first game. Given your answer to a, is the publicly stated policy credible? (Hint: No matter what happens in the first game, what will both firms do in the second game?) (Click to select) c. Given your answers to a and b, what strategy will each firm choose in the first game? (Click to select) Uptown's price strategy
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider whether the promises and threats made toward each other by duopolists and
oligopolists are always credible (believable). Look at the figure below. Imagine that the
two firms will play this game twice in sequence and that each firm claims the following
policy. Each says that if both it and the other firm choose the high price in the first game,
then it will also choose the high price in the second game (as a reward to the other firm
for cooperating in the first game).
RareAir's price strategy
High
Low
$12
$15
A
В
High
$12
$6
$6
$8
Low
$15
$8
a. As a first step toward thinking about whether this policy is credible, consider the
situation facing both firms in the second game. If each firm bases its decision on what to
do in the second game entirely on the payouts facing the firms in the second game, which
strategy will each firm choose in the second game?
(Click to select)
b. Now move one step back. Imagine that it is the start of the first game and each firm
must decide what to do during the first game. Given your answer to a, is the publicly
stated policy credible? (Hint: No matter what happens in the first game, what will both
firms do in the second game?)
(Click to select)
c. Given your answers to a and b, what strategy will each firm choose in the first game?
(Click to select)
Uptown's price strategy
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