Set up the final store example as a five-by-five two-person game. Assume that both stores combined sell 100 items (per day), that the one with the lowest prices gets all the sales, and that they split the sales evenly when both have the same prices. Use the five possible prices ($2.00, $1.90, $1.80, $1.70, $1.60) as strategies and the total profits as outcome values. Show that repeated dominance reasoning leads them to split the lowest total profit.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Set up the final store example as a five-by-five two-person game. Assume that both stores
combined sell 100 items (per day), that the one with the lowest prices gets all the sales, and that
they split the sales evenly when both have the same prices. Use the five possible prices ($2.00,
$1.90, $1.80, $1.70, $1.60) as strategies and the total profits as outcome values.
Show that repeated dominance reasoning leads them to split the lowest total profit.
Transcribed Image Text:Set up the final store example as a five-by-five two-person game. Assume that both stores combined sell 100 items (per day), that the one with the lowest prices gets all the sales, and that they split the sales evenly when both have the same prices. Use the five possible prices ($2.00, $1.90, $1.80, $1.70, $1.60) as strategies and the total profits as outcome values. Show that repeated dominance reasoning leads them to split the lowest total profit.
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