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Microeconomics

Anna Blajer-Gołębiewska M. Sc.

6. IMPERFECT COMPETITION AND STRATEGIC BEHAVIOUR

(gamę theory approach)

Exercise 1. There are only two competitors (companies operating in the market of good X). Each of them takes into consideration price reduction in order to attract morę consumers. As a result, each of them can ‘reduce the price’ or 'not to reduce the price’. It is presumed that each of them acts simultaneously or, at least, without knowing the actions of the rival. Normal form (payoff matrix) of the gamę is given below. The potential profits are provided inside the matrix.

a)    Are there any dominant strategies for each players in this gamę? If so, fmd them.

b)    Is there any Nash equilibrium in this gamę?

c)    Is there any Pareto eąuilibrium in this gamę?

Company II

not to reduce price

9 9	15 5
5 15	13 13

to reduce price

Exercise 2. There is a duopoly in the market. Each of the companies takes into consideration price reduction in order to attract morę consumers. It is presumed that each of them acts simultaneously. The elements in the matrix represent the net profits.

a) Are there any dominant strategies for each players in this gamę? If so , find them.

b)

c)

d)

Is there any Nash eąuilibrium in this gamę?

Is there any Pareto eąuilibrium in this gamę?

What profit would they gain if they signed an agreenrent (formed a cartel)?

to reduce price

Company II

not to reduce price

Company

to reduce price	not to reduce price
11 12	10 15
5 17	16 20

Exercise 3. There is a duopoly in the market. Each of the companies takes into consideration launching a marketing campaign. It is presumed that each of them acts simultaneously. The elements in the matrix represent the net profits after the campaign.

a)    Are there any dominant strategies for each players in this gamę? If so , fmd them.

b)    Is there any Nash eąuilibrium in this gamę?

Comnany I

Company II

to launch

not to launch

to launch

not to launch

40 55	60 60
50 70	55 58

Exercise 4. There are two competitors in the market, and they can choose to operate independcntiy or form a cartel. The elements in the matrix represent the net profits.

a)    What will be the best solution for the cartel agreement?

b)    Will the cartel be formed? Will it be stable?

c)    Are there any dominant strategies for each player in this gamę? If so , find them.

d)    Is there any Nash eąuilibrium in this gamę?

Company I

lower output

Company II

higher output

lower output

higher output

25 25	12 30
30 12	20 20

25