1. One-Shot, Pricing Game. You are a pricing manager at Argyle Inc.-a medium-sized firm that recently introduced a new product into the market. Argyle's only competitor is Baker Company, which is significantly smaller than Argyle. The management of Argyle has decided to pursue a short-term strategy of maximizing this quarter's revenues, and you are in-charge of formulating a strategy that will permit the firm to do so. After talking with an employee who was recently hired from the Baker Company, you are confident that a) Baker is constrained to charge $10 or $20 for its product, b) Baker's goal is to maximize this quarter's profit, and c) Baker's relevant unit costs are identical to yours. You have been authorized to price the product at two possible levels ($5 or $10) and know that your relevant costs are $2 per unit. The marketing department has provided the following information about the expected number of units sold (in millions) this quarter at various prices to help you formulate your decision: Baker's Quantity (millions of units) Argyle's quantity Argyle's Price Baker's Price (millions of units) $5 $10 3 2 5 20 3 1 10 10 1 2 10 20 1 1 Argyle and Baker currently set prices at the same time. First, determine Argyle's optimal price (single shot game) by setting up the normal form game in the standard "square". Are there any dominant strategies? If so, explain how them. Are there any Nash equilibrium? If so, what are they and how did you determine there were or were not? What is your decision? you determined
1. One-Shot, Pricing Game. You are a pricing manager at Argyle Inc.-a medium-sized firm that recently introduced a new product into the market. Argyle's only competitor is Baker Company, which is significantly smaller than Argyle. The management of Argyle has decided to pursue a short-term strategy of maximizing this quarter's revenues, and you are in-charge of formulating a strategy that will permit the firm to do so. After talking with an employee who was recently hired from the Baker Company, you are confident that a) Baker is constrained to charge $10 or $20 for its product, b) Baker's goal is to maximize this quarter's profit, and c) Baker's relevant unit costs are identical to yours. You have been authorized to price the product at two possible levels ($5 or $10) and know that your relevant costs are $2 per unit. The marketing department has provided the following information about the expected number of units sold (in millions) this quarter at various prices to help you formulate your decision: Baker's Quantity (millions of units) Argyle's quantity Argyle's Price Baker's Price (millions of units) $5 $10 3 2 5 20 3 1 10 10 1 2 10 20 1 1 Argyle and Baker currently set prices at the same time. First, determine Argyle's optimal price (single shot game) by setting up the normal form game in the standard "square". Are there any dominant strategies? If so, explain how them. Are there any Nash equilibrium? If so, what are they and how did you determine there were or were not? What is your decision? you determined
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:1. One-Shot, Pricing Game. You are a pricing manager at Argyle Inc.-a medium-sized firm that recently introduced a new product into the market. Argyle's only competitor is Baker Company, which is significantly smaller than
Argyle. The management of Argyle has decided to pursue a short-term strategy of maximizing this quarter's revenues, and you are in-charge of formulating a strategy that will permit the firm to do so. After talking with an
employee who was recently hired from the Baker Company, you are confident that a) Baker is constrained to charge $10 or $20 for its product, b) Baker's goal is to maximize this quarter's profit, and c) Baker's relevant unit costs
are identical to yours. You have been authorized to price the product at two possible levels ($5 or $10) and know that your relevant costs are $2 per unit. The marketing department has provided the following information about
the expected number of units sold (in millions) this quarter at various prices to help you
formulate
your decision:
Baker's Quantity
(millions of units)
Argyle's quantity
Argyle's Price
Baker's Price
(millions of units)
$5
$10
3
2
5
20
3
1
10
10
1
2
10
20
1
1
Argyle and Baker currently set prices at the same time. First, determine Argyle's optimal price (single shot game) by setting up the normal form game in the standard "square". Are there any dominant strategies? If so, explain how
them. Are there any Nash equilibrium? If so, what are they and how did you determine there were or were not? What is your decision?
you determined
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education