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Problem1. Two firms, A and B, are planning to propose for a contract of Motorway extension in Mauritius. Assume:

(1) Firm B is a newly established company and has already acquired a start-up cost of $25 million;

(2) A and B simultaneously select to quote either a high or low price;

(3) If both A and B quote the same price, the contract is awarded to A since it has been in market for a long period of time;

(4) If both firms submit high price, A nets $300 million;

(5) If both firms submit low price, A nets $100 million;

(6) If A prices high and B prices low, B nets $100 million (after the initial investment) and A nets $0.

Required:

problem1. Make the strategic-form game for the above strategic bidding problem.

problem2. Describe the dominant strategy and the Nash equilibrium of game.

problem3. The government is the big winner in this case. Describe why. 

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M95483

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