Teleased in November share a total of $500 million in ticket revenues, whereas blockbusters released in December share a total of $800 million. (a) Formulate the game played by Warner Bros. and Fox. (b) Determine the game's Nash equilibrium(a). 7.3. ERICSSON VS. NOKIA. Suppose that Ericsson and Nokia are the two primary com- petitors in the market for 4G handsets. Each firm must decide between two possible price levels: $100 and $90. Production cost is $40 per handset. Firm demand is as fol- lows: if both firms price at $100, then Nokia sells 500 and Ericsson 800; if both firms price at $90, then sales are 800 and 900, respectively; if Nokia prices at $100 and Erics- son at $90, then Nokia's sales drop to 400, whereas Ericsson's increase to 1,100; finally, if Nokia prices at $90 and Ericsson at $100 then Nokia sells 900 and Ericsson 700. (a) Suppose firms choose prices simultaneously. Describe the game and solve it. (b) Suppose that Ericsson has a limited capacity of 800k units per quarter. More- over, all of the demand unfulfilled by Ericsson is transferred to Nokia. How would the analysis change? (c) Suppose you work for Nokia. Your Chief Intelligence Officer (CIO) is unsure whether Ericsson is capacity constrained or not. How much would you value this piece of info?
Teleased in November share a total of $500 million in ticket revenues, whereas blockbusters released in December share a total of $800 million. (a) Formulate the game played by Warner Bros. and Fox. (b) Determine the game's Nash equilibrium(a). 7.3. ERICSSON VS. NOKIA. Suppose that Ericsson and Nokia are the two primary com- petitors in the market for 4G handsets. Each firm must decide between two possible price levels: $100 and $90. Production cost is $40 per handset. Firm demand is as fol- lows: if both firms price at $100, then Nokia sells 500 and Ericsson 800; if both firms price at $90, then sales are 800 and 900, respectively; if Nokia prices at $100 and Erics- son at $90, then Nokia's sales drop to 400, whereas Ericsson's increase to 1,100; finally, if Nokia prices at $90 and Ericsson at $100 then Nokia sells 900 and Ericsson 700. (a) Suppose firms choose prices simultaneously. Describe the game and solve it. (b) Suppose that Ericsson has a limited capacity of 800k units per quarter. More- over, all of the demand unfulfilled by Ericsson is transferred to Nokia. How would the analysis change? (c) Suppose you work for Nokia. Your Chief Intelligence Officer (CIO) is unsure whether Ericsson is capacity constrained or not. How much would you value this piece of info?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Use 7.3
Transcribed Image Text:uters released in November share
a total of $500 million in ticket revenues, whereas blockbusters released in December
share a total of $800 million.
(a) Formulate the game played by Warner Bros. and Fox.
(b) Determine the game's Nash equilibrium(a).
7.3. ERICSSON VS. NOKIA. Suppose that Ericsson and Nokia are the two primary com-
petitors in the market for 4G handsets. Each firm must decide between two possible
price levels: $100 and $90. Production cost is $40 per handset. Firm demand is as fol-
lows: if both firms price at $100, then Nokia sells 500 and Ericsson 800; if both firms
price at $90, then sales are 800 and 900, respectively; if Nokia prices at $100 and Erics-
son at $90, then Nokia's sales drop to 400, whereas Ericsson's increase to 1,100; finally,
if Nokia prices at $90 and Ericsson at $100 then Nokia sells 900 and Ericsson 700.
(a) Suppose firms choose prices simultaneously. Describe the game and solve it.
(b) Suppose that Ericsson has a limited capacity of 800k units per quarter. More-
over, all of the demand unfulfilled by Ericsson is transferred to Nokia. How
would the analysis change?
(c) Suppose you work for Nokia. Your Chief Intelligence Officer (CIO) is unsure
whether Ericsson is capacity constrained or not. How much would value
this piece of info?
you
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