What are the Nash equilibrium strategies for this game?
A)(low price, low price).
B)(high price, high price).
C)(low price, low price) and (high price, high price).
D)none of the statements associated with this question are correct.

Question

Quizplus · Accepted Answer

In this game, both firms have two strategies: low price and high price. If both firms choose a low price, they will split the market equally and earn a profit of $50 each. If both firms choose a high price, they will split the market equally but earn a lower profit of $20 each. If one firm chooses a high price and the other chooses a low price, the firm that chooses the low price will get all of the market share and earn a profit of $70, while the firm that chooses the high price will get no market share and earn a profit of $0.

Based on this, the Nash equilibrium strategies are (low price, low price) and (high price, high price). In both cases, neither firm can do better by deviating from their strategy, given the strategy of the other firm.

Therefore, if both firms are rational and try to maximize their own profit, they will both choose either a low price or a high price, resulting in a split market and lower profits.

What Are the Nash Equilibrium Strategies for This Game