United and Air "r" Us are the only two airlines operating flights between Collegeville and Bigtown. That is, they operate in a duoply. Each airline can charge either a high price or a low price ticket. The accompying matrix shows there pay off in profits per seat (in dollars) for any choice that the two airlines can make
Air R US Low=$20 High Price $0
Low= $50 High Price $ 40
United
Low=$20 High=$50
High=0 high=$40
A.) Suppose the two airlines play a one shot game that is, they interact only once and never again. What will be the nash (noncooperative) equilibrium in this one-shot game?
B.) Now suppose the two airlines play this game twice. And
suppose each airline can play one of two strategies: it can
play either “always charge the low price” or “tit for tat”—
that is, it starts off charging the high price in the first
period, and then in the second period it does whatever the
other airline did in the previous period. Write down the
payoffs to Untied from the following four possibilities:
i. Untied plays “always charge the low price” when Air
’R’ Us also plays “always charge the low price.”
ii. Untied plays “always charge the low price” when Air
’R’ Us plays “tit for tat.”
iii. Untied plays “tit for tat” when Air ’R’ Us plays “always
charge the low price.”
iv. Untied plays “tit for tat” when Air ’R’ Us also plays
“tit for tat.”
Air R US Low=$20 High Price $0
Low= $50 High Price $ 40
United
Low=$20 High=$50
High=0 high=$40
A.) Suppose the two airlines play a one shot game that is, they interact only once and never again. What will be the nash (noncooperative) equilibrium in this one-shot game?
B.) Now suppose the two airlines play this game twice. And
suppose each airline can play one of two strategies: it can
play either “always charge the low price” or “tit for tat”—
that is, it starts off charging the high price in the first
period, and then in the second period it does whatever the
other airline did in the previous period. Write down the
payoffs to Untied from the following four possibilities:
i. Untied plays “always charge the low price” when Air
’R’ Us also plays “always charge the low price.”
ii. Untied plays “always charge the low price” when Air
’R’ Us plays “tit for tat.”
iii. Untied plays “tit for tat” when Air ’R’ Us plays “always
charge the low price.”
iv. Untied plays “tit for tat” when Air ’R’ Us also plays
“tit for tat.”