Identify the socially optimal equilibria

Reference no: EM131777520

Question: You operate a fitness center, Durim, in the center of Tirana, (the capitol of Albania). Your only rival in the area is a fitness center called Palester. Your two firms form a duopoly (oligopoly with 2 firms) over Tirana's gymnasium market. You and the manager of Palester use game theory to make important decisions. For each of the following decisions, identify all the Nash Equilibria. Identify the "socially optimal" equilibria as well (the one that maximizes the sum of both player's payouts).

1. Advertising. Durim and Palester much choose how intensely to advertise (high or low). If both choose high, each firm will increase profits by $200. If both choose low, each firm will increase profits by $100. If one firm chooses high while the other firm chooses low, the high-intensity firm will earn $500 in extra profits while the low-intensity firm will lose $100 in profits.

2. Expansion. Durim and Palester much choose whether or not to expand their facilities. Expansion comes at a cost of $1000. If both firms expand, revenues for each firm will increase by $800. If both choose not to expand, revenues will be unchanged. If one firm chooses to expand while the other does not, the expanded firm will earn $1300 in extra revenues while the firm that did not expand will earn no extra revenues.

3. Decor. Durim and Palester are choosing colors for their gym. As it turns out, the colors of the two firms matter to customers (not only for their preferences, but also their ability to distinguish between the two firms). The following choices and corresponding hourly profits apply:

Reference no: EM131777520

Questions Cloud

Calculate the next dividend : The expected growth rate is 4% and the required return rate is 7.8%. Calculate the next dividend using the Constant Growth Model

Describe a situation where you think using a swot analysis : Describe a situation where you think using a SWOT analysis would be useful and explain how you would roll it out

Preparing the adjusting entries : For preparing the adjusting entries, the following data were assembled: Fees earned but unbilled on April 30 were $1,775

Understanding of the grant proposal process : Review your understanding of the grant proposal process. What steps should you take before you begin writing your proposal?

Identify the socially optimal equilibria : You operate a fitness center, Durim, in the center of Tirana, (the capitol of Albania). Your only rival in the area is a fitness center called Palester.

Is this partnership or an employer-employee relationship : Is this a Partnership or an employer-employee relationship?

Estimate silk flowers monthly shipping cost equation : Use the high-low method to estimate Silk Flowers & More's monthly shipping cost equation

Trust organizations and corporate funding : 1. What types of programs or issues might you seek research grant funding for? Who might be interested in funding such a program?

What accounts for the differences : A comparison of the EEOC Newsroom press release to the news item from the state where the lawsuit occurred. What accounts for the differences?

User Account

All Pages