#### Occupational Health and Safety, Canadian Edition

15th Edition
by David L. Goetsch, University of West Florida and Oskaloosa-Walton Eugene Ozon, Algonquin College
1035 Solutions 49 Chapters 1441 Studied ISBN: 0133450244 5 (1)

#### Chapters 13A: DQ 1

APPENDIX DISCUSSION QUESTIONS

1. Is the game shown by Figure 13.3 in the chapter (not this appendix) a zero-sum game or is it a positive-sum game? How can you tell? Are there dominant strategies in this game? If so, what are they? What cell represents a Nash equilibrium and why? Explain why it is so difficult for Uptown and RareAir to achieve and maintain a more favorable cell than the Nash equilibrium in this single-period pricing game.

#### Step-By-Step Solution

APPENDIX DISCUSSION QUESTIONS

1. Is the game shown by Figure 13.3 in the chapter (not this appendix) a zero-sum game or is it a positive-sum game? How can you tell? Are there dominant strategies in this game? If so, what are they? What cell represents a Nash equilibrium and why? Explain why it is so difficult for Uptown and RareAir to achieve and maintain a more favorable cell than the Nash equilibrium in this single-period pricing game.

Answer: This is a positive-sum game since the sum of the payoffs for each firm is positive. Yes, the dominant strategy is for both firms to use a low price strategy. This strategy will provide the highest payoff regardless of what the other firm does. The Nash equilibrium is for both firms to play the low price strategy (low-low cell) since neither firm has an incentive to deviate from this strategy given the strategy of the competing firm.

The more favorable outcome would be for both firms to collude and use the high price strategy. Both firms would earn a profit of \$12 rather than \$8 in this case. The problem is that both firms have an incentive to deviate from this strategy given that the other firm is playing the high price strategy. By pricing low, given the other firm is pricing high, profits increase to \$15 (rather than \$12 through cooperation).

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