There Are Only Two Gas Stations in a Small Town

question 168

Essay

There are only two gas stations in a small town, Swifty Gas and Speedy Gas.Each firm can set either a high price or a low price; customers view these two firms as nearly perfect substitutes.The table shows the payoff matrix of daily profits that each firm would receive from their pricing decision, given the pricing decision of their rival.Profits in each cell of the payoff matrix are given as (Swifty, Speedy).If this game is played only once and each firm sets the price of gas independently, what is the Nash equilibrium of this pricing game? Is this game an example of a prisoners' dilemma? Explain your conclusions.

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Definitions:

Behavioral Techniques

Strategies used in psychological treatment to modify an individual's behavior, often through reinforcement or conditioning.

Encourage

To give support, confidence, or hope to someone, usually through words or actions that boost their willingness or ability to continue or undertake a task or overcome a challenge.

Neater

Having or showing a tendency to be more organized, tidy, or orderly in appearance or manner.

EOL

An acronym for End Of Life, indicating the phase at which a product or system is considered no longer useful or is to be discontinued.