Once again, two ice cream truck vendors, A and B, are playing a simultaneous pricing game. If only one of the vendors prices low, he gets all the customers for a payoff of 12, while the other vendor gets no customers and a payoff of zero. If both vendors price high, they each get a payoff of 6. If both price low, they each get a payoff of 5. Suppose that the above game is repeated indefinitely, and together the vendors adopt a trigger strategy such that they would start charging the low price only if the other vendor charged a low price last time. Provided that the vendors stick to their new strategy, what would be the Nash equilibrium going forward? a) Both the vendors price high b) Both the vendors price low c) Vendor A prices high, vendor B prices low d) Vendor B prices high, vendor A prices low

Once again, two ice cream truck vendors, A and B, are playing a simultaneous pricing game. If only one of the vendors prices low, he gets all the customers for a payoff of 12, while the other vendor gets no customers and a payoff of zero. If both vendors price high, they each get a payoff of 6. If both price low, they each get a payoff of 5. Suppose that the above game is repeated indefinitely, and together the vendors adopt a trigger strategy such that they would start charging the low price only if the other vendor charged a low price last time. Provided that the vendors stick to their new strategy, what would be the Nash equilibrium going forward? a) Both the vendors price high b) Both the vendors price low c) Vendor A prices high, vendor B prices low d) Vendor B prices high, vendor A prices low

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 9MC

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