Scenario 13.16
Consider the pricing game below:
-Refer to Scenario 13.16. If the firms must choose their prices simultaneously,
A) both firms will buy gelato.
B) both firms will buy yogurt.
C) two pure strategy equilibria exist, one in which Gooi alone buys a gelato machine and one in which Ici alone buys a gelato machine.
D) the game has no pure strategy equilibrium.
E) the game has no mixed strategy equilibrium.

Question

Scenario 13.16
Consider the pricing game below: 
-Refer to Scenario 13.16. If the firms must choose their prices simultaneously,
A) both firms will buy gelato. 
B) both firms will buy yogurt. 
C) two pure strategy equilibria exist, one in which Gooi alone buys a gelato machine and one in which Ici alone buys a gelato machine. 
D) the game has no pure strategy equilibrium. 
E) the game has no mixed strategy equilibrium.

Quizplus · Accepted Answer

In a simultaneous pricing game, we need to find the pure strategy Nash equilibrium. If both firms choose to buy a gelato machine, they will both earn a profit of $2 million (2,2) and if both firms choose to buy a yogurt machine, they will both earn a profit of $1 million (1,1). However, if only Gooi buys a gelato machine and Ici buys a yogurt machine, Gooi will earn a profit of $3 million (3,0) and Ici will earn a profit of $0 (0,3). Similarly, if only Ici buys a gelato machine and Gooi buys a yogurt machine, Ici will earn a profit of $3 million (0,3) and Gooi will earn a profit of $0 (3,0). Hence, two pure strategy Nash equilibria exist in which one firm buys a gelato machine and the other buys a yogurt machine.

Scenario 13.16 Consider the Pricing Game Below