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    outcome of the game

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    On W Beach, there are two hotels, Wd and B. The practice of guaranteed price matching is illegal. If the two firms act independently (they do not engage in price fixing or any other collusive behavior), each firm will rent 50 rooms per day at a price of $50 per room and an average cost of $45 per room. Under a price-fixing or cartel arrangement, each hotel would rent 30 rooms per day at a price of $60 and an average cost of $48. If one firm charges $50 and the other firm charges $60, the low-price firm will earn a profit of $500, and the high-price firm will earn a profit of $150. Bizarre picks a price first, followed by Wed.

    a. Suppose each firm must pick a price and maintain its chosen price for the remaining lifetime of the firm. an example, draw a payoff table and predict the outcome of this game.

    b. Suppose the two firms can change their prices daily, and expect to be in business for 3 more days. Wed announces that he will start with the high price, and maintain the price as long as Bizarre does too. If B undercuts Weird, however, Weird will pick the low price for the remainder of the game. Predict the outcome of the game. Use the numbers provided.

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    Solution Summary

    The outcome of the game is displayed.