(KEY QUESTION) Consider the following strategic interaction between two Australia telecommuncation companies deciding to set the prices of their 'unlimited calls' mobile package. Оptus Medium 13, 1 10, 8 3, 16 High 17,-8 15,3 11,9 Low Low Medium 2,3 1, 10 -10, 19 a. Put yourself in the shoes of a CEO of these companies. Try to explain the business reasons behind the relationships between the various payoffs (obviously, this is just an example, they may differ in the real world and change over time). For example, why is Low in the payoff matrix the best response to the opponent playing High? Why is the payoff from (High, High) higher for both players than from Telstra High (Medium, Medium)? b. State all the dominated strategies in the game, by which strategy they are dominated, and whether weakly or strictly. What is the equilibrium outcome by dominance, if any? c. What are the pure-strategy Nash equilibria of this game?

(KEY QUESTION) Consider the following strategic interaction between two Australia telecommuncation companies deciding to set the prices of their 'unlimited calls' mobile package. Оptus Medium 13, 1 10, 8 3, 16 High 17,-8 15,3 11,9 Low Low Medium 2,3 1, 10 -10, 19 a. Put yourself in the shoes of a CEO of these companies. Try to explain the business reasons behind the relationships between the various payoffs (obviously, this is just an example, they may differ in the real world and change over time). For example, why is Low in the payoff matrix the best response to the opponent playing High? Why is the payoff from (High, High) higher for both players than from Telstra High (Medium, Medium)? b. State all the dominated strategies in the game, by which strategy they are dominated, and whether weakly or strictly. What is the equilibrium outcome by dominance, if any? c. What are the pure-strategy Nash equilibria of this game?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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(KEY QUESTION) Consider the following strategic interaction between two Australia telecommuncation companies deciding to set the prices of their 'unlimited calls' mobile package. Optus Low Medium High 17, -8 15, 3 11,9 Low 2, 3 1, 10 -10, 19 13, 1 10, 8 3, 16 Telstra Medium High a. Put yourself in the shoes of a CEO of these companies. Try to explain the business reasons behind the relationships between the various payoffs (obviously, this is just an example, they may differ in the real world and change over time). For example, why is Low in the payoff matrix the best response to the opponent playing High? Why is the payoff from (High, High) higher for both players than from (Medium, Medium)? b. State all the dominated strategies in the game, by which strategy they are dominated, and whether weakly or strictly. What is the equilibrium outcome by dominance, if any? c. What are the pure-strategy Nash equilibria of this game? d. In the simultaneous game, is there anything interesting or…
8) Assume two firms are currently competing in a market. If one of the two firms wants to try to eliminate the other firm as a competitor, should it undertake a strategy of limit pricing or predatory pricing? Why? In addition, describe the conditions under which the strategy you have selected will be most successful.
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4. Firm 1 and Firm 2 are in a duopoly, earning each annual profits of £10 million per year. Firm 1 could earn £20 million per year as a monopolist. Firm 1 drops its price to £40 when its marginal cost is £50 and holds it there for a year to be able to drive Firm 2 out of the market. (a) What pricing strategy is the manager of Firm 1 considering? Explain this strategy and how it helps to reduce competition in a market. (b) The year that it drops its price, Firm 1 will lose £10 million. At what level of interest rate i will the strategy of Firm 1 be profitable?
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