Question

Republic Services (RS) Submit high bid Submit low bid A. Both firms will submit a low bid in the Nash equilibrium outcome. The firms' managers will be unhappy with this outcome, as they could increase their profits by simultaneously choosing another outcome. O B. Both firms will submit a high bid in the Nash equilibrium outcome. The firms' managers will be happy with this outcome, as they cannot increase their profits by choosing other outcomes. O C. Both firms will submit a high bid in the Nash equilibrium outcome. The firms' managers will be unhappy with this outcome, as they could increase their profits by simultaneously choosing another outcome. OD. Both firms will submit a low bid in the Nash equilibrium outcome. The firms' managers will be happy with this outcome, as they cannot increase their profits by choosing other outcomes. RS: $1.7 billion RS: $2.1 billion Submit high bid WM: $2.8 billion WM: $1.2 billion Waste Management (WM) RS: $0.3 billion RS: $0.8 billion Submit low bid What is the cooperative equilibrium? If the companies bid repeatedly on different contracts, what can the managers do to reach the cooperative equilibrium? WM: $3.7 billion WM: $1.4 billion O A. Both firms choosing a high bid is the cooperative equilibrium. If the companies repeat this game, they can use a grim trigger strategy to reach the cooperative equilibrium. O B. Both firms choosing a low bid is the cooperative equilibrium. If the companies repeat this game, they can use a tit-for-tat strategy to reach the cooperative equilibrium. O C. Both firms choosing a low bid is the cooperative equilibrium. If the companies repeat this game, they can use a grim trigger strategy to reach the cooperative equilibrium D. Both firms choosing a high bid is the cooperative equilibrium. If the companies repeat this game, they can use a tit-for-tat strategy to reach the cooperative equilibrium. O

Answer 1

In both cases option A is correct

We can see that there is a dominant strategy of submitting a low bid for both companies. At the same time it is true that when they are submitting High bid simultaneously, their profits are increased which means that this is a cooperative equilibrium but it is not selected because it is not the outcome of dominant strategy.

However if cooperative equilibrium is selected using grim trigger strategy in the long run by repeating the game, the current outcome of submitting a low bid can be avoided by punishing the detector.