Draw a 2 time 2 payoff matrix describing the decisions the athletes face. For wh

Question

Draw a 2 time 2 payoff matrix describing the decisions the athletes face. For what X is taking the drug Nash equilibrium? Does making the drug safer (that is, lowering X) make the athletes better or worse off? Explain Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price: Does either player in this game have a dominant strategy? Does your answer to part (a) help you figure that what the other prayer should do? What is the Nash equilibrium? Is there only one? Big Brew threatens Little Kona should believe the threat? Why or why not? If the two firms could collude and agree on how to split the total profits, what outcome would they pick?

Explanation / Answer

Big Brew has dominant strategy of putting high prices because it always gets a better pay off in comparison to Little Kona. Little Kona will also have dominant strategy of entering in to the market as it will give them a better payoff in comparison to not entering into the market. Little Kona will enter into the market and Big Brew will keep the high prices. Nash equilibrium exists in Top-Left Box having payoff of (2million, 3 million). Yes, in this game, only one Nash equilibrium exists. Little Kona should not believe on this threat. Because, putting a low price by Big Brew will cause the comparatively reduced payoff to Big Brew. Thus, Big Brew will not go with low price option. They will again pick the payoff of (2million, 3 million). It is the best option for both the firms. Both will pay in the market and they will keep the high price.

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