Two firms are competing in an oligopoly and they can elect to either charge a high price or a low price. If they both charge a high price, firm A earns $100 and firm B earns $120. If they both charge a low price, firm A earns $70 and firm B earns $60. If firm A charges a low price and firm B charges a high price, firm A earns $200 and firm B earns $50. If firm B charges a low price and firm A charge a high price, firm A earns $40 and firm B earns $150. What will be the Nash equilibrium outcome, and will there be incentives to collude or cheat? (Hint - use a decision matrix) O a. There is a Nash equilibrium of both firms charging a low price, but there is incentive to collude and charge a high price. O b. There is a Nash equilibrium of both firms charging a low price, and there is no incentive to collude and charge a high price. Oc. There is a Nash equilibrium of both firms charging a high price, but there is incentive to cheat and charge a low price. O d. There is a Nash equilibrium of both firms charging a high price, and there is no incentive to cheat and charge a low price. O e. There is no Nash equilibrium.
Two firms are competing in an oligopoly and they can elect to either charge a high price or a low price.
If they both charge a high price, firm A earns $100 and firm B earns $120.
If they both charge a low price, firm A earns $70 and firm B earns $60.
If firm A charges a low price and firm B charges a high price, firm A earns $200 and firm B earns $50.
If firm B charges a low price and firm A charge a high price, firm A earns $40 and firm B earns $150.
What will be the Nash equilibrium outcome, and will there be incentives to collude or cheat? (Hint - use a decision matrix)
O a. There is a Nash equilibrium of both firms charging a low price, but there is incentive to collude and charge a high price.
O b. There is a Nash equilibrium of both firms charging a low price, and there is no incentive to collude and charge a high price.
Oc. There is a Nash equilibrium of both firms charging a high price, but there is incentive to cheat and charge a low price.
O d. There is a Nash equilibrium of both firms charging a high price, and there is no incentive to cheat and charge a low price.
O e. There is no Nash equilibrium.
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