Which firm benefits most from the cooperative outcome

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Reference no: EM13242477

Two firms are in the chocolate market. Each can choose to go for the differentiation focused high quality market or the cost focused low quality market. Resulting profits are given by the following payoff matrix:

Firm 2

Firm 1 Low High
Low -20, -30 900, 600
High 100, 800 50, 50

a. What outcomes are Nash equilibria?

b. If the managers of both firms are conservative and each follows a maximin (low-risk) strategy, what will be the outcome?

c. What is the cooperative outcome?

d. Which firm benefits most from the cooperative outcome? How much would that firm need to offer the other to persuade it to collude?

Reference no: EM13242477

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