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Homework answers / question archive / Suppose that the market for credit cards is a duopoly comprised of two companies Vita (V) and MisterCard (M)
Suppose that the market for credit cards is a duopoly comprised of two companies Vita (V) and MisterCard (M). Suppose that Vita is the industry leader. Therefore, Vita gets to pick how many cards issue first. Then, MisterCard finds out how much Vita has produced and picks an output level. Assume that Vita's output choices are 1000 and 2000 and that MisterCard's output choices are 400 and 800. This situation is depicted using a payoff matrix below. Vita (6) Q-1000 Q-2000 MisterCard (M) Q-400 V-45,000 M 18,000 V 30,000 M - 12,000 Q-800 V 43,500 M-35,000 V-28,700 M - 23500 a) Find the Stackelberg Equilibrium. Now assume that Vita and MisterCard move simultaneously. That is, they decide to produce without knowing how much each other are producing, b) Does Vita have a dominant strategy? If so, what is it? c) Does MisterCard have a dominant strategy? If so, what is it? d) Find the Nash Equilibrium for this game.
A)Vita will play Q=1000 irresepctive of master card strategy, and knowing this mastercard will play Q=800
B) yes Vita have a dominant strategy as Q=1000 because dominant strategy is a strategy which a player plays irrespective of what other player plays because of higher payofF.
C) mastercard have dominant strategy as Q=800
D)vita will play Q=1000 and master card will play Q=800 is a nash equilibrium
