Suppose a town only has two petrol stations, United and BP. Each could choose to charge a high price or low price, as shown in the matrix below. ВР BP charges a low price: BP has low profit; United has low profit ВР BP charges a high price: BP has no profit; United has high profit United charges a United low price: United charges a high price: has BP has average profit; United has average profit high profit; United has no profit (a) What is the dominant strategy for the above matrix (i.e., a Nash equilibrium)? Explain briefly (b) If the two petrol stations could collude, what would be the likely strategy? Explain briefly. (c) Briefly explain the principles of the 'kinked' demand curve by using an example such as pricing a product by the two supermarket giants.
Suppose a town only has two petrol stations, United and BP. Each could choose to charge a high price or low price, as shown in the matrix below. ВР BP charges a low price: BP has low profit; United has low profit ВР BP charges a high price: BP has no profit; United has high profit United charges a United low price: United charges a high price: has BP has average profit; United has average profit high profit; United has no profit (a) What is the dominant strategy for the above matrix (i.e., a Nash equilibrium)? Explain briefly (b) If the two petrol stations could collude, what would be the likely strategy? Explain briefly. (c) Briefly explain the principles of the 'kinked' demand curve by using an example such as pricing a product by the two supermarket giants.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter10: Monopolistic Competition And Oligopoly
Section: Chapter Questions
Problem 16CTQ: Would you rather have efficiency or variety? That is, one opportunity cost of the variety of...
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