Problem
Consider there are only two participants in the soft drink market; Coke and Pepsi.
They can either charge high or low prices. Assume Pepsi charges low prices, then Coke would have a return of 100million=€3 if they charge low prices and a return of 20mil|ion=€ if they charge high prices. If Pepsi charges high prices however, Coke would have a return of 500million€ if they charge low prices and a return of 200mi|lion=€ if they would charge high prices. The return structure for Pepsi is analogous.
i. Construct a payoff matrix for Pepsi and Coke.
ii. Find all possible Nash-Equilibria.