Pizza Hut and Dominoís are considering to open a shop in a new shopping precinct in Burwood. Suppose both charge $10 for a pizza (price competition is ignored here), and the aggregate local demand for pizza at this price is Q: If both Örms open a shop in the shopping precinct, Q is shared equally between the two shops. On the other hand, if there is only one pizza shop in the shopping precinct, the total demand Q goes to that shop. The total cost function for Pizza Hut is TC P(Q) = 5Q + 6000 and the total cost function for Dominos is TCD(Q) = 5Q+ 6000: Each has two strategies: Open a shop or Not, and they make their decisions simultaneously. The payoff is zero for a firm that does not open a shop in the shopping precinct. Suppose Q= 3000: Construct a 2 X 2 payoff matrix for this entry game between Pizza Hut and Dominoís and Önd the NE of the game. Suppose Q = 2000:Construct a 2x2 payoff matrix for this entry game between Pizza Hut and Dominoís and Önd the NE of the game.
Pizza Hut and Dominoís are considering to open a shop in a new shopping precinct in Burwood. Suppose both charge $10 for a pizza (price competition is ignored here), and the aggregate local demand for pizza at this price is Q: If both Örms open a shop in the shopping precinct, Q is shared equally between the two shops. On the other hand, if there is only one pizza shop in the shopping precinct, the total demand Q goes to that shop. The total cost function for Pizza Hut is TC P(Q) = 5Q + 6000 and the total cost function for Dominos is TCD(Q) = 5Q+ 6000: Each has two strategies: Open a shop or Not, and they make their decisions simultaneously. The payoff is zero for a firm that does not open a shop in the shopping precinct. Suppose Q= 3000: Construct a 2 X 2 payoff matrix for this entry game between Pizza Hut and Dominoís and Önd the NE of the game. Suppose Q = 2000:Construct a 2x2 payoff matrix for this entry game between Pizza Hut and Dominoís and Önd the NE of the game.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Pizza Hut and Dominoís are considering to open a shop in a new shopping precinct in Burwood.
Suppose both charge $10 for a pizza (price competition is ignored here), and the aggregate local demand for pizza at this price is Q: If both Örms open a shop in the shopping precinct, Q is shared equally between the two shops. On the other hand, if there is only one pizza shop in the shopping precinct, the total demand Q goes to that shop. The total cost function for Pizza Hut is
TC P(Q) = 5Q + 6000
and the total cost function for Dominos is
TCD(Q) = 5Q+ 6000:
Each has two strategies: Open a shop or Not, and they make their decisions simultaneously. The payoff is zero for a firm that does not open a shop in the shopping precinct.
Suppose Q= 3000: Construct a 2 X 2 payoff matrix for this entry game between Pizza Hut and Dominoís and Önd the NE of the game.
Suppose Q = 2000:Construct a 2x2 payoff matrix for this entry game between Pizza Hut and Dominoís and Önd the NE of the game.
Show that the entry game between Pizza Hut and Dominoís bears the same features as the game of chicken when 1200<Q < 2400.
(d)Suppose demand is uncertain and Pizza Hut and Dominoís expect that Q= 3000 with probability p; and Q= 2000 with probability 1 p: Show that in equilibrium both will open a shop when p >0:4; and only one Örm will open a shop when p <0:4
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