Firm B Firm A Low Price High Price Low Price 0,0 50,-10 High Price -10,50 20, 20

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter14: Pricing Techniques And Analysis
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Refer to the normal-form game of price competition in the payoff matrix below. Suppose the game is infinitely repeated, and the interest rate is 10 percent. Both firms agree to charge a high price, provided no player has charged a low price in the past. (a) If both firms stick to this agreement, then what is the present value of firm A's payoffs? Please show your calculations. (b) If firm A cheats, what is the present value of the returns for Firm A for cheating? Please show your calculations.
 
Firm B
Firm A
Low Price
High Price
Low Price
0,0
50,-10
High Price
-10,50
20, 20
Transcribed Image Text:Firm B Firm A Low Price High Price Low Price 0,0 50,-10 High Price -10,50 20, 20
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