(d) Consider a simultaneous-move game between two firms choosing to sell theirproduct at either £6, £7 or £8. The actions and payoffs are given in the matrix below.Firm 2's Prices£6£7£8Firm 1's prices£64, 53, 52, 1£70,42, 13,0£8-1, 14, 30, 2What are the Nash equilibria of this game? Game theory is often used by firmscompeting under an oligopoly as a means of determining their best strategy. Why isgame theory a useful tool and which characteristics of an oligopoly make itparticularly useful for firms competing in this market structure? One outcome of anoligopoly is that firms may have an incentive to collude. Explain some of theconditions that make collusion more likely to occur and how game theory canexplain why collusive agreements often break down.

Answered: Image /qna-images/answer/596cac95-8a84-4795-9de8-d7ba8d3eb236.jpg

(d) Consider a simultaneous-move game between two firms choosing to sell their product at either £6, £7 or £8. The actions and payoffs are given in the matrix below. Firm 2's Prices £6 £7 £8 Firm 1's prices £6 4, 5 3, 5 2, 1 £7 0, 4 2, 1 3,0 £8 -1, 1 4, 3 0, 2 What are the Nash equilibria of this game? Game theory is often used by firms

(d) Consider a simultaneous-move game between two firms choosing to sell their product at either £6, £7 or £8. The actions and payoffs are given in the matrix below. Firm 2's Prices £6 £7 £8 Firm 1's prices £6 4, 5 3, 5 2, 1 £7 0, 4 2, 1 3,0 £8 -1, 1 4, 3 0, 2 What are the Nash equilibria of this game? Game theory is often used by firms

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 9MC

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Solve for the Nash equilibrium (or equilibria) in each of the following games. (a) The following two-by-two game is a little harder to solve since firm 2’spreferred strategy depends of what firm 1 does. But firm 1 has a dominantstrategy so this game has one Nash equilibrium. Firm 2 Launch Don’tFirm 1 Launch 60, -10 100, 0 Don’t 80, 30 120, 0 What is the Nash equilibrium of this simultaneous-move game? (b) What would the outcome of this game be if instead firm 1 moved first and then, after seeing what firm 1 chose, firm 2 chose it strategy? In this case firm 1 doesn’t necessarily need to choose a best response, but firm 2 must choose a best response since it moves second.
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