Using the following game matrix: A. what price will Coke and Pepsi charge and wh
ID: 1126228 • Letter: U
Question
Using the following game matrix:
A. what price will Coke and Pepsi charge and what are each company’s profits?
B. What are the dominant strategies for each company based on the matrix?
C. What would the companies charge if they colluded with each other?
The italics are for Pepsi, and the bold is for Coke.
Dominos
$1.89
$1.99
$2.09
Pizza Hut
$1.89
$13000
$22000
$16000
$19000
$20000
$16000
$1.99
$12000
$18000
$15000
$15000
$18000
$13000
$2.09
$9000
$14000
$13000
$12000
$16000
$10000
Dominos
$1.89
$1.99
$2.09
Pizza Hut
$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
A) Coke will charge $ 1.89 because it gives highest payoff as compared to prices $1.99 and $ 2.09.
Pepsi will charge $ 1.89 because it gives highest payoff as compared to prices $1.99 and $ 2.09.
B) Dominant strategy is a strategy for a player i.e. best response to all strategy profile of other player. If all players in a game have a dominant strategy then we say that Game has dominant strategy equilibrium.
Payoff of Coke and Pepsi are highest when they charge $ 1.89 irrespective of decision of their competitors so both have dominant strategy of charging price of $1.89.
C) When they both collude then both will charge $ 1.99 and earn payoff of $ 15000 each.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.