Problem 1: 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, then Office Depot and Staples guarantee they will match the lower prices. Explain why this pricing policy may not be good news for consumers.
Problem 2: Recently one of the nation’s largest consumer electronics retailers began a nationwide television advertising campaign kicking off its “Take It Home Today” program, which is designed to encourage electronics consumers to buy today rather than continue postponing a purchase hoping for a lower price. For example, the “Take It Home Today” promotion guarantees buyers of new plasma TVs that they are entitled to get any sale price the company might offer for the next 30 days.
a. Do you think such a policy will increase demand for electronic appliances? Explain.
b. What other reason could explain why this program is offered? Would you expect the other large electronics stores to match this program with one of their own? Why or why not?
Problem 3: Suppose that Nike and Adidas are the only sellers of athletic footwear in the United States. They are deciding how much to charge for similar shoes. The two choices are “Low” and “High”. The payoff (profit as million) 2X2 matrix is as follows:
a. Is there a dominant strategy for Nike? Is there a dominant strategy for Adidas?
b. If Nike is the price leader and the first mover, what will be the Nash equilibrium in the game?