Homework Answers
We will use the best response strategies to find the Nash equilbrium of the game
BR for firm A are as follows:
When B bids high, the BR is to bid high as payoff is higher than bidding low (3500 > 0)
When B bids low, the BR is to bid low as payoff is higher than bidding high (6000> 1500)
By symmetry of payoffs, we will get the same best responses for the firm B
Thus, from Best responses we can observe that the Nash equilibrium is where both the firms bid the same price that can happen in two instances - both firms bid high or both firms bid low
Thus, tehre are two nash equilibrum of the game:
(1) Both firms bid high ang get 3500 each
(2) Both firms bid low and get 6000 each
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