1. Assume that two car companies, VW and Toyota, are trying to determine their pricing strategies for their 2021 sedan model. Assume further that the two companies only have two pricing strategies: price Low or price High. Given that the two firms are selling an identical product, if they set the same price then they will split the market equally. Assume that if both firms set high prices, they each make R40 million. By contrast, if both firms set low prices then they each make R20 million. If one firm sets a high price and the other sets a low price, the low price firm captures the entire market and earns R60 million and the high price firm earns RO. Which of the following games best characterises the strategic interaction described above? A. Pure coordination game B. Assurance game C. Battle of the sexes game D. Chicken game E. Prisoners’ Dilemma game

1. Assume that two car companies, VW and Toyota, are trying to determine their pricing strategies for their 2021 sedan model. Assume further that the two companies only have two pricing strategies: price Low or price High. Given that the two firms are selling an identical product, if they set the same price then they will split the market equally. Assume that if both firms set high prices, they each make R40 million. By contrast, if both firms set low prices then they each make R20 million. If one firm sets a high price and the other sets a low price, the low price firm captures the entire market and earns R60 million and the high price firm earns RO. Which of the following games best characterises the strategic interaction described above? A. Pure coordination game B. Assurance game C. Battle of the sexes game D. Chicken game E. Prisoners’ Dilemma game

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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