Solve for the mixed strategy Nash equilibrium of the game above. Explain carefully how you solve for it. 2. In the equilibrium you calculated above, what is the probability that both consoles are released in October? In December? What are the expected payoffs of firm A and of firm B in equilibrium?
Solve for the mixed strategy Nash equilibrium of the game above. Explain carefully how you solve for it. 2. In the equilibrium you calculated above, what is the probability that both consoles are released in October? In December? What are the expected payoffs of firm A and of firm B in equilibrium?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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1. Solve for the mixed strategy Nash equilibrium of the game above. Explain carefully how you solve for it.
2. In the equilibrium you calculated above, what is the probability that both consoles are released in October? In December? What are the expected payoffs of firm A and of firm B in equilibrium?
Transcribed Image Text:Two firms A and B manufacture video game consoles. Firm A's console is less tech-
nologically advanced than that of firm B, and firm A knows that if consumers get to
choose between both consoles at the same time, they would choose the console of firm
B. Therefore, firm A's only chance to sell a large number of consoles is to release it at
a different time than firm B. Firm B prefers to release the console at the same time as
firm A to benefit from the hype and blog reviews.
Suppose first that the firms have to commit to a release date in advance. Firms can
choose to release the console either in October or in December. Therefore, while the
game has some dynamic aspect, we can think of the choice of the release date as a
simultaneous move game, represented by the payoff matrix below.
A \ B
October
October
(10, 100)
December (50, 50)
December
(100, 50)
(10, 100)
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