Oligopoly Game Theory

Oligopoly Game Theory1. Use the table below to answer the following questions.

Profits in Millions of Dollars (Firm As Profit A, Firm Bs Profit B)

Firm Bs Price

$25$50

Firm As Price$25A B(200, 200)A B(400, 100)

$50A B(100, 400)A B(300, 300)

a.If firm A charges a price of $25, what price will firm B charge? $______________

b.If firm A charges a price of $50, what price will firm B charge? $______________

c.Does firm B have a dominant strategy? ______________ (yes or no)

d.If firm B charges a price of $25, what price will firm A charge? $______________

e.If firm B charges a price of $50, what price will firm A charge? $______________

f.Does firm A have a dominant strategy? _______________ (yes or no)

g.If the firms do not communicate with each other, firm A will charge $_________ and firm B will charge $_________.

h.If the firms collude, firm A will charge $_________ and firm B will charge $_________.

i.Is the situation in which both firms charge $25 a Nash equilibrium? __________ (yes or no)j.Is the situation in which both firms charge $50 a Nash equilibrium? __________ (yes or no)

2. Use the table below to answer the following questions.

Profits in Millions of Dollars (Firm As Profit A, Firm Bs Profit B)

Firm Bs Price

$25$50

Firm As Price$25A B(300, 200)A B(400, 100)

$50A B(100, 300)A B(500, 400)

a.If firm A charges a price of $25, what price will firm B charge? $______________

b.If firm A charges a price of $50, what price will firm B charge? $______________

c.Does firm B have a dominant strategy? ______________ (yes or no)

d.If firm B charges a price of $25, what price will firm A charge? $______________

e.If firm B charges a price of $50, what price will firm A charge? $______________

f.Does firm A have a dominant strategy? _______________ (yes or no)

g.Is the situation in which both firms charge $25 a Nash equilibrium? __________ (yes or no)

h.Is the situation in which both firms charge $50 a Nash equilibrium? __________ (yes or no)

i.Is the situation in which firm A charges $25 and firm B charges $50 a Nash equilibrium? __________ (yes or no)

j.Is the situation in which firm A charges $50 and firm B charges $25 a Nash equilibrium? __________ (yes or no)