Case Assignment: Suppose two competitors, Coa, Inc., and Han, Inc., are locked in a bitter pricing struggle in the aluminum industry. In the limit pricing payoff matrix, Coa can choose a given row of outcomes by offering a limit price ("up") or monopoly price ("down"). Han can choose a given column of outcomes by choosing to offer a limit price ("left") or monopoly price ("right"). Neither firm can choose which cell of the payoff matrix to obtain; the payoff for each firm depends upon the pricing strategies of both firms.
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Han
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Coa
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Pricing Strategy
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Limit Price
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Monopoly Price
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Limit Price
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$1.5 billion, $3 billion
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$2.5 billion, $2 billion
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Monopoly Price
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$1 billion, $4 billion
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$1.75 billion, $3 billion
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Questions to answer:
1. Is there a dominant strategy equilibrium in this problem?
2. If there is a dominant strategy equilibrium, what is it?
3. Is there a Nash equilibrium in this problem?
4. If there is a Nash equilibrium, what is it?