Discussion: "Predicting Price-Setting Strategies"

Please respond to at least two of the following:

Question 1

From the scenario for Katrina's Candies, determine the importance of predicting the pricing strategies of rival firms in an industry characterized by mutual interdependence.

Examine the common price setting strategies of airlines that use game theory. Predict the potential effects of such pricing strategies on the demand for seats, and conclude the resulting impact on the profitability of the airlines.

Question 2

The Game Matrix below is for Katrina's Candy and Gooey Goodness. The matrix shows the profits (or payoffs) from each firm's pricing strategy. Katrina's payoffs are in black and Gooey's payoffs are in red. What is Katrina's Dominant Strategy? What is Gooey's Dominant Strategy? What Cell (A, B, C, D) represents the solution? What would the consequence be for Katrina's if they had not accurately predicted their rival's pricing strategy?

Question3

Two airlines, American and United, must decide independently to follow a high volume (low price) strategy or a low volume (high price) strategy. The payoff matrix of each combination of decisions is shown below. American's profits are in the upper triangles and United's are in the lower triangles.Does either firm have a dominant strategy? Explain what will the likely outcome be, cell A, B, C, or D?