Suppose 2 gas stations must post their prices for regular gasoline at 6am each morning and cannot change their price during the day.Each gas station has a choice: charge a relatively “low” price or charge a relatively “high” price. The following shows their profit for the day of each gas station depending upon which price each gas station chooses: Gas Station B Low PriceHigh PriceGas Station ALow Price$2000, $900$500, $1500 High Price$1200, $1800$300, $2100Assume that this is a "one shot" game:Does this game represent a prisoner’s dilemma situation? Why or why not?If the gas stations can talk the night before making their pricing decision and discuss their pricing strategies, what pricing strategy would each gas station choose the next morning? Assuming both gas stations act rationally, what will be the outcome of the game? Explain.

Game theory is a theoretical or mathematical model for making rational decisions by strategic…

Answered: Suppose 2 gas stations must post their…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter23: Price-searcher Markets With Low Entry Barriers

Section: Chapter Questions

Problem 17CQ

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Suppose 2 gas stations must post their prices for regular gasoline at 6am each morning and cannot change their price during the day.

Each gas station has a choice: charge a relatively “low” price or charge a relatively “high” price. The following shows their profit for the day of each gas station depending upon which price each gas station chooses:

	Gas Station B
		Low Price	High Price
Gas Station A	Low Price	$2000, $900	$500, $1500
	High Price	$1200, $1800	$300, $2100

Assume that this is a "one shot" game:

Does this game represent a prisoner’s dilemma situation? Why or why not?
If the gas stations can talk the night before making their pricing decision and discuss their pricing strategies, what pricing strategy would each gas station choose the next morning? Assuming both gas stations act rationally, what will be the outcome of the game? Explain.

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