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Table 14-2 Walmart ("W") High price Low price High price "T" earns $10,000 "W" earns $10,000 "T" earns $5,000 "W" earns $14,000 Target ("T") Low price "T" earns $14,000 "W" earns $5,000 "T" earns $7,000 "W" earns $7,000 Table 14-2 shows the payoff matrix for Walmart and Target from every combination of pricing strategies for the popular PlayStation 4. At the start of the game each firm charges a low price and each earns a profit of $7,000. 21) Refer to Table 14-2. Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium? A) No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price. B) Yes, the current situation is a Nash equilibrium. C) No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game. D) No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000. 22) Refer to Table 14-2. For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000? A) No, there is no incentive for each firm to consider any other strategy. B) Yes, each firm can implicitly agree to increase output and not to deviate from a low price. C) No, any other strategy hurts consumers. D) Yes, the firms can implicitly collude and agree to charge a higher price. 23) Refer to Table 14-2. Suppose Walmart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy? A) to signal to each other that they intend to charge the high price B) to signal to each other to share the market equally C) to signal to each other that they will not hesitate to initiate a price war D) to signal to each other not to charge below the current low price

Table 14-2
Walmart ("W")
High price Low price
High price "T" earns $10,000 "W" earns $10,000 "T" earns $5,000 "W" earns $14,000
Target ("T")
Low price "T" earns $14,000 "W" earns $5,000 "T" earns $7,000 "W" earns $7,000
Table 14-2 shows the payoff matrix for Walmart and Target from every combination of pricing strategies for the popular PlayStation 4. At the start of the game each firm charges a low price and each earns a profit of $7,000.
21) Refer to Table 14-2. Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?
A) No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price.
B) Yes, the current situation is a Nash equilibrium.
C) No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game.
D) No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000.
22) Refer to Table 14-2. For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?
A) No, there is no incentive for each firm to consider any other strategy.
B) Yes, each firm can implicitly agree to increase output and not to deviate from a low price.
C) No, any other strategy hurts consumers.
D) Yes, the firms can implicitly collude and agree to charge a higher price.
23) Refer to Table 14-2. Suppose Walmart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?
A) to signal to each other that they intend to charge the high price
B) to signal to each other to share the market equally
C) to signal to each other that they will not hesitate to initiate a price war
D) to signal to each other not to charge below the current low price

Added by Steven E.

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