2019 Micro Set 1, FRQ # 3, Oligopoly
1st - Underline Patricks Pie's numbers
and square-in Dee's Pizza
2nd - Do a word chart
a) What actions maximize the combined total profits for Patricks pie and Dee's pizza?
b) Conditional on your answer in part (a), does either Patrick or Dee have an incentive to cheat on this combination of actions that maximize the combined total profits? Explain using numbers from the payoff matrix.
c) Does Patrick have a dominant strategy?
d) Identify the Nash Equilibrium or equilibria actions for this game.
Nash Equilibrium = When neither player has an incentive to change its position
*** If neither player has a dominant strategy
there can be two Nash Equilibria
or
No Nash Equilibria
e) Ignoring anti-trust considerations, suppose that Patrick pays Dees $20 to Stay-Out
i) Redraw the payoff matrix showing how the $20 payment to Dee affects the payoffs.
ii) Identify the Nash Equilibrium
