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Nash Equlibrium/Payoffs

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4. The table below shows the payoffs two competing firms, Cole and Martin, face in the decision to reduce their price or retain their current price.

Lower Price Retain Price

Martin Lower
Price Cole 70K Martin 80K Cole 40K
Martin 100K
Price Cole 100K
Martin 50K Cole 80K
Martin 90K

a. What will Cole's decision be and why?
b. What will Martin's decision be and why?

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Solution Preview

Cole's decision is to lower price, because he is better off doing so regardless of Martin's decision. Let us take a look,

1) if Martin plays "lower price", Cole gets 70K from lowering price while only 40K from retain ...

Solution Summary

The expert examines Nash equilibrium and payoffs for current prices.