Asked by Jennifer Marcoccia on May 10, 2024
Verified
If the game is repeated indefinitely,and the vendors adopt a trigger strategy such that they would start charging the low price only if the other vendor charged a low price last time,what would be the Nash equilibrium?
A) Both the vendors price high
B) Both the vendors price low
C) Vendor A prices high,vendor B prices low
D) Vendor B prices high,vendor A prices low
Nash Equilibrium
A concept in game theory where no player can benefit by changing strategies if the other players keep theirs unchanged.
Simultaneous Pricing Game
A strategic interaction in economics where multiple firms set their prices at the same time, taking into consideration the potential reactions of competitors.
Trigger Strategy
A long-term tactic in game theory where a player's future actions are conditional on other players' actions, commonly used to enforce cooperation or punish non-cooperation.
- Absorb the essence of Nash Equilibrium as a concept in game theory.
- Recognize the effects of continuous interactions on the formulation of strategy and equilibrium.
Verified Answer
BN
Brittney NicholeMay 11, 2024
Final Answer :
A
Explanation :
In a repeated game with a trigger strategy, both vendors have an incentive to maintain a high price to avoid triggering the low price response from the other vendor. Pricing high ensures a stable payoff of 6 for each, which is preferable to the lower payoff of 5 if both price low continuously after a deviation. This mutual high pricing strategy is sustainable and constitutes a Nash equilibrium, as neither vendor has an incentive to deviate unilaterally.
Learning Objectives
- Absorb the essence of Nash Equilibrium as a concept in game theory.
- Recognize the effects of continuous interactions on the formulation of strategy and equilibrium.