Suppose Two Firms,Allstom from France,and Bombardier from Canada,are Bidding on a Contract

question 99

Multiple Choice

Suppose two firms,Allstom from France,and Bombardier from Canada,are bidding on a contract to replace train cars for the subway system in Mexico City.If they bid the same amount,they share the contract-otherwise,the low bid wins.The figure below shows the payoff matrix for this contest. FIGURE 11-5
-Refer to Figure 11-5.What is the Nash equilibrium in this bidding contest between Allstom and Bombardier?

• A)The two firms will co-operate and maximize their joint profits at $10 million each.
• B)Each firm will bid the high price,expecting a larger total profit.
• C)Each firm will bid the low price,and each will earn a profit of $2.5 million.
• D)There is no Nash equilibrium in this bidding contest,because each firm can expect to earn at least $5 million.
• E)both A and C are Nash equilibria.

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Definitions:

Customer Benefit Approach

A sales strategy focusing on communicating the advantages and positive outcomes that a customer will gain from a product or service.

Referral

The act of recommending a product, service, or company to someone else, often based on personal experience.

Complimentary

Expressing a polite or flattering comment towards someone or something, or items given for free in connection with a purchase or promotional activity.