Question

The Tampa Tribune and the St. Petersburg Times compete for readers in the Tampa Bay market for newspapers. Recently, both newspapers considered changing the prices they charge for their Sunday editions. Suppose they considered the following payoff table for making a simultaneous decision to charge either a low price of $0.50 or a high price of $1.00. Tampa’s profits are shown in bold. St. Petersburg’s profits are in regular type.

For questions 1 – 10, choose the correct answer to fill in the blanks. Use the suggested words in parentheses after each blank.  A detailed explanation must be given to defend each choice.

		Tampa Tribune
		Low Price		High Price
		A.		B.
	Low price	$120,000		$54,000
St Pete Times			$100,000		$120,000
		C.		D.
	High Price	$90,000		$88,000
			$54,000		$90,000

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1.

Tampa Tribune's dominant strategy is ____________ (low price, high price, it has no dominant strategy).

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2. St. Petersburg Times' dominant strategy is ____________ (low price, high price, it has no dominant strategy).

3. Tampa Tribune's dominated strategy is ____________ (low price, high price, it has no dominant strategy).

4. St. Petersburg Times' dominated strategy is ____________ (low price, high price, it has no dominant strategy).

5. This newspaper pricing decision ________ (is, is not) a Prisoners' Dilemma.

6. Is there a Nash Equilibrium in this game? If so, which cell(s) is/are the Nash? Is/are the Nash Dominant Strategy Equilibrium?

7. Which cell(s) is/are strategically stable?

Answer 1