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Nash Equilibrium with AMD and Intel

Below is a payoff matrix for Intel and AMD for PC microprocessors. The first number per cell is AMD's profit while the second is Intel's.
Intel
Lower Price Same Price Higher Price
AMD Lower Price -15,-15 2,6 15,-15
Same Price 6,4 7,20 5,-4
Higher Price -12,12 -3,25 16,30
a. Is there a Nash Equilibrium? Why?
b. Is this an example of a prisoner's dilemma?

Solution Preview

Part A
The action pair (Lower Price, Lower Price) is NOT a Nash equilibrium because (i) given that AMD chooses Lower Price, Intel is better off choosing Same Price (payoff 6).

The action pair (Lower Price, Same Price) is NOT a Nash equilibrium because (i) given that AMD chooses Lower Price, Intel is better off choosing Same Price (payoff 6) but (ii) given that Intel chooses Same Price, AMD is better off choosing Same Price (Payoff 7)

The action pair (Lower Price, Higher Price) is NOT a Nash equilibrium because (i) given that AMD chooses Lower Price, Intel is better off choosing Same Price (payoff 6).

The action pair (Same Price, Lower Price) is NOT a Nash equilibrium because (i) given that AMD chooses Same Price, Intel is better off choosing Same Price (payoff ...

Solution Summary

This solution shows in a stepwise manner how to identify a Nash Equilibrium and also determine if the Intel and AMD case is an example of the prisoner's dilemma.

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