2. Collusive outcome vs. Nash equilibrium Aa Aa Consider a remote town in which
ID: 1118109 • Letter: 2
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2. Collusive outcome vs. Nash equilibrium Aa Aa Consider a remote town in which two restaurants, All-You-Can-Eat Cafe and GoodGrub Diner, operate in a duopoly. Both restaurants disregard health and safety regulations, but they continue to have customers because they are the only restaurants within 80 kilometres of town. Both restaurants know that if they clean up, they will attract more customers, but this also means that they will have to pay workers to do the cleaning If neither restaurant cleans, each will earn $9,000 alternatively, if they both hire workers to clean, each will earn only $4,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $13,000, and the other restaurant will make only $2,000. Based on the information given, use the dropdown menus to fill in the payoff matrix that follows. firms. GoodGrub Diner Clean Up Don't Clean Up Clean Up All-You-Can-Eat Cafe Don't Clean Up If All-You-Can-Eat Cafe and GoodGrub Diner decide to collude, the outcome of this game is as follows: All-You-Can-Eat Cafe , and GoodGrub Diner If both restaurants decide to cheat and behave uncooperatively, the Nash equilibrium of this game is as follows: All-You-Can-Eat Cafe , and GoodGrub DinerExplanation / Answer
If All you can eat cafe and GoodGrub Diner decide to collude, the outcome of this game is as follows. All you can eat cafe does not clean , and GoodGrub diner does not clean.
(If the two firms collude both will maximise by not cleaning)
If both restaurants decide to cheat and behave uncooperatively, the Nash equilibrium of this game is as follows. All you can eat cafe cleans and Goodgrub diner cleans.
( If both restaurants clean neither restaurant will have an incentive to unilaterally deviate. The unique Nash equilibrium is maintained at this level.)
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