Table 14-4

Alpha and Beta are the only firms selling gyros in the upscale town of Delphi. Each firm must decide on whether to offer a discount to students to compete for customers. If one firm offers a discount but the other does not, then the firm that offers the discount will increase its profit. Table 14-4 shows the payoff matrix for this game.
-Refer to Table 14-4.What is the Nash equilibrium in this game?

Question

Table 14-4
  
Alpha and Beta are the only firms selling gyros in the upscale town of Delphi. Each firm must decide on whether to offer a discount to students to compete for customers. If one firm offers a discount but the other does not, then the firm that offers the discount will increase its profit. Table 14-4 shows the payoff matrix for this game.
-Refer to Table 14-4.What is the Nash equilibrium in this game?

Quizplus · Accepted Answer

The Nash equilibrium occurs when both firms offer a student discount. This is because if one firm offers the discount and the other does not, the firm offering the discount will attract more customers and earn a higher profit. However, if both firms offer the discount, they will split the market, but they will each earn more profit than if neither had offered the discount. Therefore, both firms offering the discount is the best choice.

Table 14-4 Alpha and Beta Are the Only Firms Selling Gyros in Only