Table 17-17.Consider a small town that has two grocery stores from which residents can choose to buy a gallon of milk.The store owners each must make a decision to set a high milk price or a low milk price.The payoff table,showing profit per week,is provided below.The profit in each cell is shown as (Store 1,Store 2).

-Refer to Table 17-17.What is the Nash Equilibrium of this price-setting game?

Question

Table 17-17.Consider a small town that has two grocery stores from which residents can choose to buy a gallon of milk.The store owners each must make a decision to set a high milk price or a low milk price.The payoff table,showing profit per week,is provided below.The profit in each cell is shown as (Store 1,Store 2).
 
-Refer to Table 17-17.What is the Nash Equilibrium of this price-setting game?

Quizplus · Accepted Answer

In this game, both grocery stores have a dominant strategy of setting a low milk price. By setting a low price, they ensure that they earn a profit of $300 each. If either store decides to set a high price, they risk losing customers to the competitor who sets a lower price, resulting in a lower overall profit. Therefore, the Nash Equilibrium is for both stores to set a low milk price.