GAME THEORY AND OLIGOPOLY. Profit payoff Matrix for Subways and Quiznos (Sandwich Style Resturants. Below is...

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Economics

GAME THEORY AND OLIGOPOLY. Profit payoff Matrix for Subways andQuiznos (Sandwich Style Resturants. Below is the profitpayoff matrix for these two restaurants depending on whether theyset their Chicken sandwich price HIGH or LOW
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TABLE 1
Quiznos LOW price
Quiznos HIGH price
Subway LOW price
$7 million for Subway
$7 million for Quiznos
$12 million for Subway
$5 million for Quiznos
Subway HIGH price
$5 million for Subway
$12 million for Quiznos
$9 million for Subway
$9 million for Quiznos
a) Using Table, what if any is thecollusive outcome? Explain whether it willoccur.
b) Using Table, what if any is theNash equilibrium? Explain whether it willoccur.
TABLE 2
Quiznos LOW price
Quiznos HIGH price
Subway LOW price
$7 million for Subway
$8 million for Quiznos
$12 million for Subway
$6 million for Quiznos
Subway HIGH price
$10 million for Subway
$12 million for Quiznos
$9 million for Subway
$9 million for Quiznos
c) What is meant by a dominantstrategy? Using Table 2, is there a dominantstrategy? Explain, and determine which outcome willoccur?

Answer & Explanation Solved by verified expert

3.8 Ratings (566 Votes)

a There is a collusive outcome when both charge a HIGH price This is because the collective payoff is greater at 9 million for both which is highest of all options HIGH HIGH No this is not likely to take place since both See Answer

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