due after 2 hours

Before you start this, you must have read pages 155-161. It would be helpful to have watched these two short videos. Watching these is also a good way to prepare for class activity on Wed Dec. 3.

http://www.youtube.com/watch?v=zpahL4fu5R8&sns=em

http://www.youtube.com/watch?v=2d_dtTZQyUM&sns=em

3. X Station and PlayBox are in the same market. Without colluding, each must decide to price their game console HIGH or LOW. Using the payoff matrix below, decide on the pricing strategy each firm should pursue. The profits of X Station are in black and the profits of PlayBox are in red.

(X Station and Play Box profits ) Play Box

high low

high 400 / 500 50 / 300

X Station

low 600 / 150 100 / 200

a. Does X Station have a dominant strategy? __________________

If yes, what???______________

b. Does PlayBox have a dominant strategy? ___________________

If yes, what??________________

c. Is there a Nash equilibrium? __________________