Cheeseburgers in Paradise
Two Honolulu burger joints, Hamburger Heaven and Beach Burgers, are trying to decide whether to charge extra for cheese on their burgers. They must both order their menus today with no knowledge of the other restaurant's decision. The two restaurants do not cooperate. The relevant payoff matrix appears below and both restaurants know all of the information contained therein. The first entry in each cell is Beach Burgers' weekly profit while the second entry is Hamburger Heaven's weekly profit.
Hamburger Heaven
cheese extra free cheese
|
cheese extra
Beach Burgers
free cheese
|
$1500, $1700
|
$1200, $1850
|
|
$1600, $1550
|
$1400, $1625
|
1. In which market structure do these firms operate?
2. What are the strategies relevant to this game?
3. If both restaurants charge extra for cheese, what will Hamburger Heaven's weekly profit be?
4. Is there a dominant strategy for Beach Burgers? If so, identify it.
5. Is there a dominant strategy for Hamburger Heaven? If so, identify it.
6. Is there a Nash Equilibrium? What is it?
7. Is this a prisoner's dilemma game? Why or why not?