Suppose the robot assistant market consists of two firms: MultiTech and MicroRobo. Each of the two firms must simultaneously choose to set either a high price or a low price for its robots. If both MultiTech and MicroRobo set a high price, their profits will be SEK 30 million each. Conversely, if they both set a low price, their profits will be only SEK 3 million. On the other hand, if one firm sets a high price while the other sets a low price, the high-priced firm will incur a loss of SEK 15 million, while the low-priced firm will gain a profit of SEK 90 million. Answer the following questions: a) Write the payoff matrix of this game. b) How many Nash equilibria are there? Identify each equilibrium, what is the dominant strategy? c) Suppose MultiTech has a well-known brand, therefore receiving profits 15% higher than MicroRobo in all strategies. Explain how this would affect the payoff matrix and the firms' strategies.
Suppose the robot assistant market consists of two firms: MultiTech and MicroRobo. Each of the two firms must simultaneously choose to set either a high price or a low price for its robots. If both MultiTech and MicroRobo set a high price, their profits will be SEK 30 million each. Conversely, if they both set a low price, their profits will be only SEK 3 million. On the other hand, if one firm sets a high price while the other sets a low price, the high-priced firm will incur a loss of SEK 15 million, while the low-priced firm will gain a profit of SEK 90 million. Answer the following questions: a) Write the payoff matrix of this game. b) How many Nash equilibria are there? Identify each equilibrium, what is the dominant strategy? c) Suppose MultiTech has a well-known brand, therefore receiving profits 15% higher than MicroRobo in all strategies. Explain how this would affect the payoff matrix and the firms' strategies.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose the robot assistant market consists of two firms: MultiTech and MicroRobo. Each of the two firms must
simultaneously choose to set either a high price or a low price for its robots. If both MultiTech and MicroRobo set a high
price, their profits will be SEK 30 million each. Conversely, if they both set a low price, their profits will be only SEK 3
million. On the other hand, if one firm sets a high price while the other sets a low price, the high-priced firm will incur a
loss of SEK 15 million, while the low-priced firm will gain a profit of SEK 90 million. Answer the following questions: a)
Write the payoff matrix of this game. b) How many Nash equilibria are there? Identify each equilibrium, what is the
dominant strategy? c) Suppose MultiTech has a well-known brand, therefore receiving profits 15% higher than
MicroRobo in all strategies. Explain how this would affect the payoff matrix and the firms' strategies.
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