The Tampa Tribune and the St. Petersburg Times compete for readers in the Tampa

Question

The Tampa Tribune and the St. Petersburg Times compete for readers in the Tampa Bay market for newspapers. Recently, both newspapers considered changing the prices they charge for their Sunday editions. Suppose they considered the following payoff table for making a simultaneous decision to charge either a low price of $0.50 or a high price of $1.00.

For questions 1 10, provide the correct answer to fill in the blanks. Use the suggested words in parentheses after each blank.

Cell A ________ (is, is not) strategically stable.  Explain answer

Cell B ________ (is, is not) strategically stable. Explain answer

This newspaper pricing decision ________ (is, is not) a Prisoners' Dilemma. Explain answer

St. Petersburg Times Low Price
$0.50 High Price
$1.00 Tampa Tribune Low Price
$0.50 A.
$45,000,$30,000 B.
$35,000,$20,000 High Price
$1.00 C.
$40,000,$45,000 D.
$50,000,$40,000 Payoffs in dollars of profit per Sunday edition.

Explanation / Answer

based on Nash equilibrium,

Cell A is strategically stable because for St. Petersburg Times Low price payoff is always more than high price payoff no matter what strategy Tampa tribure is using.

and when tempa tribune is using low price strategy he is getting $45000 wwhich is more so, cell A is stable

Cell B is not stable because St. Petersburg Times will never exercise high price strategy.

yes it is prisoner dilemna because it does not result in a ideal outcome which is box D.

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