Problem
In a small town, two restaurants compete in the market for pizza. Each restaurant must decide whether to charge a high price or a low price. The potential monthly profits for these firms are as shown below (in thousands of dollars).
|
|
Restaurant A
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Price Low
|
Price High
|
|
Restaurant B
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Price Low
|
18 (B)
12 (A)
|
30 (B)
70 (A)
|
|
Price High
|
70 (B)
30 (A)
|
42 (B)
28 (A)
|
1. Using the above matrix, does Restaurant A have a dominant strategy? If yes, what is it? Explain.
2. Using the above matrix, does Restaurant B have a dominant strategy? If yes, what is it? Explain.
3. Define the Oligopoly market and provide an example of it. How is the Oligopoly market different from the monopolistic market?. Explain at least three differences between these two.
4. What do you understand by dominant and nash equilibrium strategy?