Economic and Game Theory
|
"Inside every small problem is a large problem struggling to get out." | ||||||||
Topics | Thread and Full Text View
From your question, it isn't clear if it's a sequential game or a simultaneous game. You've 2 players and 2 strategies (reduce price; don't reduce price). This is if it's a simultaneous game. If it's a sequential game where one firm can observe the action of the other firm, you'll have one firm with 4 pairs of strategies (reduce, stay; stay, reduce;reduce reduce;stay, stay) Now have each player noted as a row or a column player with their respective strategies and you're just about to get started with the matrix. Now if firm A cuts price and firm B follows, you should get a payoff of (10,10). Fill in the payoff for the rest. Once you've the payoff matrix ready, it's not difficult to get the NE (if any) :) Good luck! :) p/s: an alternative is to start with part (d) 1st and eliminate the dominated strategy so that you'll have a smaller matrix to work with to find NE [Manage messages]
|