Suppose Two Companies,Sony and Magnavox,are Competing in a Duopoly

question 214

Essay

Suppose two companies,Sony and Magnavox,are competing in a duopoly.If both companies charge a high price,they each make $700 million in economic profit.If both companies charge a low price,they each make $500 million in economic profit.If one company charges a high price and the other a low price,the company charging the higher price makes $450 million in economic profit and the company charging the lower price makes $800 million in economic profit.
a.Complete the payoff matrix below for Sony and Magnavox.

b.Find the Nash equilibrium.

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Definitions:

Note Payable

A written promise to pay a certain amount of money, often with interest, by a specific date, recognized as a liability in the borrower's financial statements.

Consolidated Statement

A financial statement that aggregates the financial position and results of operations of a parent company and its subsidiaries as a single entity.

Push-down Accounting

An accounting method used in situations of acquisitions, where the financial statements of the acquired company are restated to reflect the acquirer's basis of assets and liabilities.

Equity Method

An accounting technique used by firms to assess the profits earned from their investments in other companies, where they own a significant but not controlling interest, typically recognized as 20% to 50% ownership.