Consider a market with two firms, Hewlett-Packard (HP) and Dell, that sell print

Question

Consider a market with two firms, Hewlett-Packard (HP) and Dell, that sell printers. Both companies must choose whether to charge a high price ($450) or a low price ($300) for their printers. These price strategies with corresponding profits are depicted in the payoff matrix to the right. HP's profits are in red and Dell's are in blue. Suppose HP and Dell are initially at the game's Nash equilibrium. HP Price= $450 Price= $300 Then, HP and Dell advertise that they will match any lower price of their competitors. For example, if HP charges $300, then Dell will match that price and also charge $300. $90 $15 Price = $450 $90 $100 What effect will matching prices have on profits (relative to the Nash equilibrium without price matching)? Dell HP's profit will change by and Dell's profit will change by D (Enter either positive or negative numeric responses using integers.) $100 $35 Price $300 $15 $35

Explanation / Answer

We see that the Best response of Dell to HP playing P = $450 is $300 and the Best response of Dell to HP palying #300 is $300. Thus $300 is teh dominant strategy for Dell.

LIke wise $300 is the dominant strategy for HP.

The NAsh Equilibrium is therefore:

($300, $300)

HP's Profit will change by $ 90-35 = $55 and Dells profit will cahneg By $ 90-35 =$55

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