The following diagram shows a "reaction function" graph for two firms selling in an export market, where HH is the home firm's reaction function and FF is the foreign firm's reaction function. Reaction function HH reflects the fact that, if the foreign firm increases its quantity sold in this market, then the home firm will __________ its sales level in the market; reaction function FF reflects the fact that, if the home firm increases its quantity sold in this market, the foreign firm will __________ its sales level in the market.
Definitions:
Nash Equilibrium
A concept in game theory where no player can gain by changing their strategy while the other players keep theirs unchanged.
Normal Form Game
A representation of strategic interactions in game theory, highlighting the strategies and payoffs available to players.
Price Competition
A market situation where businesses attempt to attract customers by systematically lowering the prices of their goods or services, often resulting in narrower profit margins.
Labor Negotiation Game
A strategic interaction between employers and employees or their representatives aimed at establishing terms of employment, including wages and working conditions.
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