Consider a model of two firms ( firm1 and firm 2) competing

Consider a model of two firms ( firm1 and firm 2) competing against each other and setting prices… Show more Consider a model of two firms ( firm1 and firm 2) competing against each other and setting prices simultaneously. Suppose they have a choice of setting either p= $ 5 or p=$ 8 . If both of them set the lower price they split the total profits of $ 44 equally( I.e each of them gets $22). If they both set the higher price, they split the total profits of $82 equally ( I.e each of them gets $41). However, if one of them charges the lower price while the other firm charges the higher price, the lower price firm earns a profit of $ 60. While the other firm earns a profit of $ 14 . The payoff matrix is given below. Does. Firm 1 and 2 have a dominant strategy each? What is the Nash Equilibrium? Explain briefly? • Show less

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