The Tampa Tribune and the St. Petersburg Times compete for readers in the Tampa
ID: 1217367 • Letter: T
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. Tampa’s profits are shown in bold. St. Petersburg’s profits are in regular type.
For the following choose the correct answer to fill in the blanks. Use the suggested words in parentheses after each blank. Provide a short explanation (25-35 words) to defend each choice.
St. Petersburg Times
Low Price
High Price
Low price
A.
B.
$120,000
$54,000
Tampa Tribune
$100,000
$120,000
C.
D.
High Price
$90,000
$88,000
$54,000
$90,000
2.St. Petersburg Times' dominant strategy is ____________ (low price, high price, it has no dominant strategy).
4.St. Petersburg Times' dominated strategy is ____________ (low price, high price, it has no dominant strategy).
7.Which cell(s) is/are strategically stable?
St. Petersburg Times
Low Price
High Price
Low price
A.
B.
$120,000
$54,000
Tampa Tribune
$100,000
$120,000
C.
D.
High Price
$90,000
$88,000
$54,000
$90,000
Explanation / Answer
If Tampa Tribune chooses low price strategy then St. Petersburg Times will earn a profit of $100,000 if it also chooses low price strategy and will earn a profit of $120,000 if it chooses high price strategy. It can be seen that St. Petersburg Times will choose high price strategy if Tampa Tribune chooses low price strategy because profit is higher in that case.
If Tampa Tribune chooses high price strategy then St. Petersburg Times will earn a profit of $54,000 if it chooses low price strategy and will earn a profit of $90,000 if it also chooses high price strategy. It can be seen that St. Petersburg Times will choose high price strategy if Tampa Tribune chooses high price strategy because profit is higher in that case.
Thus, St. Petersburg Times will choose the high price strategy irrespective of strategy choosen by Tampa Tribune.
Strategy that a player chooses irrespective of strategy choosen by other player or players is said to be the dominant strategy of that player.
So, in given case, high price is the dominant strategy for St. Petersburg Times and low price is the dominated strategy.
Q2. St. Petersburg Times' dominant strategy is high price.
Q4. St. Petersburg Times' dominated strategy is low price.
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