Answer to Question #167876 in Microeconomics for Grace

Question

One of you is Dodge, and the other is Chevrolet. At the same time, you must each choose whether to offer a hybrid sports car, or not to offer a hybrid sports car. If you both offer one, you each make 60millionprofit.Ifneitheroffersone,youeachmake

50 million profit. If one of you offers a hybrid and the other does not, the person who offered a hybrid makes 80million and the person who didn′t makes70 million.

1. Do not talk to each other, except to reveal your choice. Play the game ten times. Generally describe what happened (you don’t have to write out the results of every single game, just describe it generally). Did it match the Nash equilibrium prediction? How do you know?
2. You may now talk to each other, and make promises and threats about what you will play, although you do not necessarily have to honor your word. Play the game five times. Generally describe what happened (you don’t have to write out the results of every single game, just describe it generally). Did it match the Nash equilibrium prediction? How do you know?

Answer 1

At first, we see the payoff matrix of this game :

the Asteric payoff denotes the nash equilibrium. Here there are two pure strategy nash equilibrium i.e. (offer, not offer) and (not offer, offer).

1. in the first game when dodge and Chevrolet play their strategies simultaneously for 10 times, in general it is found that the predicted equilibrium is played.

2. when Dodge and Chevrolet play after having knowledge of what other is going to play, again in general the predicted equilibrium comes to be true.