Roland's Barber Shop and Charley's Barber Shop are both located in the business district of a certain town. Roland estimates that if he raises the price of a haircut by $1, he will increase his market share by 7% if Charley raises his price by the same amount; he will decrease his market share by 2% if Charley holds his price at the same level; and he will decrease his market share by 7% if Charley lowers his price by $1. If Roland keeps his price the same, he will increase his market share by 4% if Charley raises his price by $1; he will keep the same market share if Charley holds the price at the same level; and he will decrease his market share by 4% if Charley lowers his price by $1. Finally, if Roland lowers the price he charges by $1, his market share will increase by 8% if Charley raises his prices by the same amount; he will increase his market share by 4% if Charley holds his price at the same level; and he will increase his market share by 2% if Charley lowers his price by $1.
If neither party is willing to lower the price he charges for a haircut, what strategy should they choose?

A) Roland should hold the price. Charley should hold the price.
B) Roland should hold the price. Charley should raise the price.
C) Roland should raise the price. Charley should raise the price.
D) Roland should raise the price. Charley should hold the price.
E) The game is not strictly determined.

Question

Roland's Barber Shop and Charley's Barber Shop are both located in the business district of a certain town. Roland estimates that if he raises the price of a haircut by $1, he will increase his market share by 7% if Charley raises his price by the same amount; he will decrease his market share by 2% if Charley holds his price at the same level; and he will decrease his market share by 7% if Charley lowers his price by $1. If Roland keeps his price the same, he will increase his market share by 4% if Charley raises his price by $1; he will keep the same market share if Charley holds the price at the same level; and he will decrease his market share by 4% if Charley lowers his price by $1. Finally, if Roland lowers the price he charges by $1, his market share will increase by 8% if Charley raises his prices by the same amount; he will increase his market share by 4% if Charley holds his price at the same level; and he will increase his market share by 2% if Charley lowers his price by $1. ​
If neither party is willing to lower the price he charges for a haircut, what strategy should they choose?
​
A) Roland should hold the price. Charley should hold the price.
B) Roland should hold the price. Charley should raise the price.
C) Roland should raise the price. Charley should raise the price.
D) Roland should raise the price. Charley should hold the price.
E) The game is not strictly determined.

Quizplus · Accepted Answer

Given that neither party is willing to lower their prices, the options are for either or both to hold or raise their prices. The best outcome for both, considering their unwillingness to lower prices, is to hold their prices steady. This way, Roland maintains his market share, and Charley avoids a decrease in market share, which is the most stable outcome for both parties under the given constraints.

Roland's Barber Shop and Charley's Barber Shop Are Both Located