ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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2 clothing manufacturers, LE and LL B, are deciding what price to charge for very similar field coats. Cost of producing these coats is $100. The coats are very close substitutes, so customers swarm to the seller that offers the lowest price. If both firms offer the same prices, each receives half of the customers.  Assume the two firms have the choice of pricing at prices of $103, $102, or $101. The profit each firm would earn at various prices is shown in the payoff matrix below

 

                   $103     ($150, $150)      ($0, $200)        ($0, $120)

Lands' End $102     ($200, $0)          ($100, $100)    ($0, $120)

                   $101.    ($120, $0)          ($120, $0)        ($50, $50)

 

 

What is the Nash equilibrium and expected profits to LLB and LE of this game?

If this was a mixed strategy game in which LLB has a 25% percent chance of choosing a price of $101, a 25% chance of choosing price of $102, and a 50% chance of choosing $103, while LE has a1/3 chance of choosing each strategy. What’s the expected payoff to LLB?

 

Suppose that in hopes of raising prices, LLB announces a price of. $103 for its coat before LE announces their prices. Do you think this strategic move be successful for LLB?

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