Suppose two companies, Sony and Magnavox, are competing in a duopoly. If both co
ID: 1194443 • Letter: S
Question
Suppose two companies, Sony and Magnavox, are competing in a duopoly. If both companies charge a high price, they each earn $700 million in economic profit. If both companies charge a low price, they each earn $500 million in economic profit. If one company charges a high price and the other a low price, the company charging the higher price earns $450 million in economic profit and the company charging the lower price earns $800 million in economic profit.
Suppose two companies, Sony and Magnavox are competing in a duopoly. If both companies charge a high price, they each earn $700 million in economic profit. If both companies charge a low price, they each earn S500 million in economic profit. If one company charges a high price and the other a low price, the company charging the higher price earns $450 million in economic profit and the company charging the lower higher price ears s450 million in economic profit and the company charging the lower price earns $800 million in economic profit. Oligopoly. Magnavox's strategies Sony's strategies a. b. c. Complete the above payoff matrix for Sony and Magnavox. Find the Nash equilibrium. Can firms do better than the outcome in part b.? ExplainExplanation / Answer
a.
b. As per dominating strategy, firms will consider its own profits irrespective of what other firms are doing and try to maximize its own payoff. Thus it will charge low price and therefore Nash equilibrium is (500,500)
c. As evident from the above matrix, if both firms communicates with each other and decides to charge higher prices then each firm can make a profit of $700 million. Thus we can say that cartel outcome is a better outcome than to work in autarchy.
Magnavox High Price Low Price Sony High Price (700,700) (450,800) Low Price (800,450) (500,500)Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.