Using the following game matrix, what price will Coke and Pepsi charge and what
ID: 1120355 • Letter: U
Question
Using the following game matrix, what price will Coke and Pepsi charge and what are each companies profits. The italics are for Pepsi, and the bold is for Coke. Is there a way to get to a different solution? Explain.
Pepsi
$1.89
$1.99
$2.09
Coke
$1.89
$13000
$22000
$16000
$19000
$20000
$16000
$1.99
$12000
$18000
$15000
$15000
$18000
$13000
$2.09
$9000
$14000
$13000
$12000
$16000
$10000
Pepsi
$1.89
$1.99
$2.09
Coke
$1.89
$13000
$22000
$16000
$19000
$20000
$16000
$1.99
$12000
$18000
$15000
$15000
$18000
$13000
$2.09
$9000
$14000
$13000
$12000
$16000
$10000
Explanation / Answer
Coke have dominant strategy as $1.89
Pepsi have dominant strategy as $1.89
(1.89,1.89) is a Nash equilibrium and payoff of coke=13000 and payoff of pepsi is 22000
There is no pareto improvement but total payoff or sum of payoff of both can be increased.
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