rene's Dairy is deciding whether or not to enter the market for ice cream, currently monopolized by Mattie's Ice-cream. If it enters the market, Mattie's can either accommodate him and share his 10million in profits equally with Irene or fight him and cause a 5million loss for each in a price war. What would the Nash equilibrium be in this sequential game?

Question

Friedman

Business

16 February, 09:02

rene's Dairy is deciding whether or not to enter the market for ice cream, currently monopolized by Mattie's Ice-cream. If it enters the market, Mattie's can either accommodate him and share his 10million in profits equally with Irene or fight him and cause a 5million loss for each in a price war. What would the Nash equilibrium be in this sequential game?

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Answers (1)

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Troy Pratt · Answer 1

Enter, accommodate

Explanation:

Nash equilibrium is a concept of game theory that stated that the optimal outcome for an entity is that they have no incentive to deviate from their original strategy after considering their opponent's choice.

It is a logical and mathematical way by which an entity determines the best outcome for themselves.

In this scenario the best option is to Enter and accommodate.

For Irene if they enter and accommodate the most optimal outcome is that they will get $5 million in profits. If they fight they will lose $5 million. They will enter because they know Mattie will lose $5 million is they fight.

For Mattie if they fight Irene they will lose $5million which is worse that sharing their profit.

So the best option after considering beach other's strategy is to accommodate and share the profits