ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Suppose 2 gas stations must post their prices for regular gasoline at 6am each morning and cannot change their
Each gas station has a choice: charge a relatively “low” price or charge a relatively “high” price. The following shows their profit for the day of each gas station depending upon which price each gas station chooses:
Gas Station B | |||
Low Price | High Price | ||
Gas Station A | Low Price | $2000, $900 | $500, $1500 |
High Price | $1200, $1800 | $300, $2100 |
Assume that this is a "one shot" game:
- Does this game represent a prisoner’s dilemma situation? Why or why not?
- If the gas stations can talk the night before making their pricing decision and discuss their pricing strategies, what pricing strategy would each gas station choose the next morning? Assuming both gas stations act rationally, what will be the outcome of the game? Explain.
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