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There Are Only Two Gas Stations, Swifty Gas and Speedy

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There are only two gas stations, Swifty Gas and Speedy Gas, in a small town. 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. 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? Is this game an example of a prisoners' dilemma? Explain your conclusions. There are only two gas stations, Swifty Gas and Speedy Gas, in a small town. 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. 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? Is this game an example of a prisoners' dilemma? Explain your conclusions.


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