# Nash equilibrium

Not what you're looking for?

You operate in a duopoly in which you and a rival must simultaneously decide what price to advertise in the weekly newspaper. If you each charge a low price, you each earn zero profits. If you each charge a high price, you each earn profits of $3. If you charge different prices, the one charging the higher price loses $5 and the one charging the lower price makes $5.

a. Find the Nash equilibrium for a one-shot version of this game.

b. Now suppose the game is infinitely repeated. If the interest rate is 10 percent, can you do better than you could in a one-shot play of the game? Explain.

c. Explain how "history" affects the ability of firms in this game to achieve an outcome superior to that of the one-shot version of the game.

##### Purchase this Solution

##### Solution Summary

Find the Nash equilibrium for a one-shot version of this game.

##### Solution Preview

Nash Equilibrium

<br>-----------------

<br>

<br>a. Normal Form of the game

<br>

<br>(Columns of the table may get mis-aligned because of BM formatting my output somewhat incorrectly; my apologies, please)

<br>

<br> Your Rival

<br> Low Price High Price

<br>

<br> Low (0,0) (5,-5)

<br> You

<br> High (-5,5) (3,3) ...

##### Purchase this Solution

##### Free BrainMass Quizzes

##### Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

##### Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

##### Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

##### Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

##### Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.