Reference no: EM132479924

NUS B-School Student Union has organized an international cultural festival as a step to petition against the academism-dominant program atmosphere. The festival being mostly about creating a fun school life, the Union arranged a beer section as well and two local bars (bar 1, bar 2) have shown interest to participate in the festival. The bars were guided to select a price among $2, $4, or $5 per mug for their beer. The price selection is to be informed to the Union through a sealed submission process, thus justifying a simultaneous-moving game format. (Once selected, prices cannot be changed since changing the price causes the bars to lose reputation and thus is not considered by the bars. And the NUS MBA students being not so sophisticated in their tastes, they only care about the volume of beer they can drink with their budget but not the brands.) The school not being drinking-friendly yet, each customer - student or bum - is allowed to drink only up to one mug. The Participants for the beer section consists of two groups: students and bums. Throughout the festival, 60 students and 40 bums are correctly expected to visit one of the two bars to drink. It is known that the students pick a bar randomly (with 50:50 chance) and the bums select the lowest priced bar. (If bars charge the same prices, each bar gets to serve 30 students and 20 bums.) The bars are profit maximizers. The bars' fixed costs are all sunk and marginal costs are close to zero, so all costs are negligible. (Or you can assume that the bars are simply sales-revenue maximizers.)

Answer the following questions.

(1) Construct the game matrix with players, strategies and payoffs well specified.

(2) Can you find the following equilibrium?

a. Dominant Strategy Equilibrium

b. (Pure Strategy) Nash Equilibrium