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Oligopoly (2 problems)


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Problem #1: Nash Equilibrium
Suppose the payoff table below describes a two-player, one-shot simultaneous move (decision) game in which each player can choose either strategy A or strategy B.

Player 1

Player 2

Strategy

A

B

A

$500, $500

$0, $650

B

$650, $0

$100, $100

a. Does player 1 have a dominant strategy. Explain why or why not?

b. Does player 2 have a dominant strategy. Explain why or why not?

c. Find the Nash equilibrium (or equilibria) of this game. Explain your answer.

d. Rank the strategy pairs from highest to lowest, in terms of the joint (aggregate) payoff.

e. Can the outcome with the highest joint (aggregate) payoff be sustained in equilibrium? Explain why or why not.

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Problem #2: Nash Equilibrium

Suppose the two rival office supply companies Office Depot and Staples both adopt price-matching policies. If consumers can find lower advertised prices on any items they sell, the Office Depot and Staples guarantee they will match the lower prices. Explain why this pricing policy may not be good news for consumers.

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