7. Problems and Applications 7 A case study in the chapter describes a phone con

Question

7. Problems and Applications 7 A case study in the chapter describes a phone conversation between the presidents of American Airlines and Braniff Airways. Let's analyze the game between the two companies. Suppose that each company can charge either a high price for tickets or a low price. If one company charges $300, it earns low profits if the other company also charges $300, and high profits if the other company charges $600. On the other hand, if the company charges $600, it earns very low profits if the other company charges $300 and medium profits if the other company also charges $600. Complete the following decision box for this game. Braniff's Decision High Price Low Price High Price American's Decision Low Price The Nash equilibrium outcome in this game is for American to set a price and for Braniff to set a True or False: Consumers would lose if the two airlines collude to earn higher profits than those given by the Nash equilibrium O True False

Explanation / Answer

Answer:

3 nash eqm 300,600; 300,300 and 600, 300

1. american : 300, 600 braniff: 600,300

2. true

AB 600 300 600 medium, medium low, high 300 high , low low, low

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