Question

Total Posts Unre Posts Forum Description 0 0 United Discussion 5 Oligopoly & Game Theory Low High Dalam 320 thousand - than High United 20th United 330 thousand Delta Delte catre 30 thousand 90 Low United 5-10 and Airlines often find themselves in price wars. Consider the above game: Delta and United are the only two airlines flying the route from Houston to Omaha. Each firm has two strategies: charge a high price or charge a low price a. What is the dominant strategy (if any) for Delta? What is the dominant strategy (if any) for United? b. Assume the two firms agree to charge the high price. If they decide to break this agreement and compete, What is the Nash equilibrium? Displaying 1 to 1 of 1 iter

Answer 1

(a) The dominant stratey for Delta is to charge a lower price. This is because, the payoff for Delta is higher irrespective of the price charged by United. Similarly,The dominant stratey for United is to charge a lower price. This is because, the payoff for United is higher irrespective of the price charged by Delta.

(b) If the firms break away from high price and compete, from (a) it is clear that the unique Nash equilibrium is for both the firms to charge a low price.