Consider whether the promises and threats made toward each other by duopolists and oligopolists are always credible (believable). Look at the figure below. Imagine that the two firms will play this game twice in sequence and that each firm publicly proclaims the following policy. Each says that if both it and the other firm choose the high price in the first game, then it will also choose the high price in the second game (as a reward to the other firm for cooperating in the first game). (Note: Profit payoffs are shown in millions of dollars.) RareAir's price strategy High Low A $12 B $15 High $12 $6 $6 D $8 Low $15 $8 a. As a first step toward thinking about whether this policy is credible, consider the situation facing both firms in the second game. If each firm bases its decision on what to do in the second game entirely on the payouts facing the firms in the second game, which strategy will each firm choose in the second game? (Click to select) b. Now move backward in time one step. Imagine that it is the start of the first game and each firm must decide what to do during the first game. Given your answer to part a, is the publicly stated policy credible? (Hint: No matter what happens in the first game, what will both firms do in the second game?) (Click to select) V c. Given your answers to parts a and b, what strategy will each firm choose in the first game? |(Click to select) Uptown's price strategy
Consider whether the promises and threats made toward each other by duopolists and oligopolists are always credible (believable). Look at the figure below. Imagine that the two firms will play this game twice in sequence and that each firm publicly proclaims the following policy. Each says that if both it and the other firm choose the high price in the first game, then it will also choose the high price in the second game (as a reward to the other firm for cooperating in the first game). (Note: Profit payoffs are shown in millions of dollars.) RareAir's price strategy High Low A $12 B $15 High $12 $6 $6 D $8 Low $15 $8 a. As a first step toward thinking about whether this policy is credible, consider the situation facing both firms in the second game. If each firm bases its decision on what to do in the second game entirely on the payouts facing the firms in the second game, which strategy will each firm choose in the second game? (Click to select) b. Now move backward in time one step. Imagine that it is the start of the first game and each firm must decide what to do during the first game. Given your answer to part a, is the publicly stated policy credible? (Hint: No matter what happens in the first game, what will both firms do in the second game?) (Click to select) V c. Given your answers to parts a and b, what strategy will each firm choose in the first game? |(Click to select) Uptown's price strategy
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter13: best-practice Tactics: Game Theory
Section: Chapter Questions
Problem 3E
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Question
Transcribed Image Text:Consider whether the promises and threats made toward each other by duopolists and oligopolists are always credible (believable).
Look at the figure below. Imagine that the two firms will play this game twice in sequence and that each firm publicly proclaims the
following policy. Each says that if both it and the other firm choose the high price in the first game, then it will also choose the high
price in the second game (as a reward to the other firm for cooperating in the first game). (Note: Profit payoffs are shown in millions of
dollars.)
RareAir's price strategy
High
Low
$12
$15
High
$12
$6
C
$6
$8
Low
$15
$8
a. As a first step toward thinking about whether this policy is credible, consider the situation facing both firms in the second game. If
each firm bases its decision on what to do in the second game entirely on the payouts facing the firms in the second game, which
strategy will each firm choose in the second game?
|(Click to select)
b. Now move backward in time one step. Imagine that it is the start of the first game and each firm must decide what to do during the
first game. Given your answer to part a, is the publicly stated policy credible? (Hint: No matter what happens in the first game, what will
both firms do in the second game?)
(Click to select) V
c. Given your answers to parts a and b, what strategy will each firm choose in the first game?
(Click to select)
Uptown's price strategy
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