Reference no: EM1372820
Firm A and Firm B are the only competitors in market. Each has to decide what price to set for its product. Once prices are set, they cannot be changed for year. Both companies set prices at the same time.
The options for setting price are the same for both firms: $8,000 or $4,000.
If Firm A and B both set price at $4,000: A's payoff is $10 million and B's payoff is $10 million.
If Firm A and B both set price at $8,000: A's payoff is $4 million and B's payoff is $5 million.
If Firm A sets price at $4,000 and B sets price at $8,000: A's payoff is -$4 million and B's payoff is $8 million.
If Firm B sets price at $4,000 and A sets price at $8,000: B's payoff is -$4 million and A's payoff is $8 million.
What is the Nash Equilibrium?
The answer is set both A and B at $8,000. How do you get to this answer?
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