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Experimental Economics
General Equilibrium
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Prisoners Dilemma
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Respond to the question: Question about pricing theory?

02/27/2001 11:08 AM by Brandon;
Think of the customers of the 2 firms as the police officer who caught them and are going to charge them in court :) He can "put the blame, all of it" on the one who do not confess and let the other go. Here, the customer has perfect
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02/27/2001 12:56 AM by Brandon; Prisoners' dilemma
Hi! See if I can help...
Well, the typical translation of the prisoners' dilemma to economics translate their plight into the situation of duopolists deciding on their pricing. If both set a high price, their profit is higher (provided elasticity is <1) ; if both set a low price, their profit is low.
If 1 firm "cheats" and engage to compete in price, ie the other firm remaining on it's high pricing policy, the discounter captures the whole market & makes a very high profit. The other firm which sets the high price makes a loss. At Nash equilibrium, both firms set low prices. It's interesting here to note that if they can agree to a binding agreement, both can set a high price and gain from the higher profit.

Hope I'm correct :) See if the above helps. [Manage messages]

02/26/2001 03:40 PM by T.L.; Question about pricing theory
In the prisoner's dilemma, competitor A & B benefit by raising price (more profits). But Prof. Levine says competitor A can get more utility by not raising price and stay low price. I don't understand this. It seems competitor B [View full text and thread]