Question

For the situation, identify the two players and their possible choices, and construct a payoff matrix for their conflict. Andersonville has two gas stations, Ralph's Qwik-Serv and Charlie's Gas-n-Go. Both Ralph and Charlie are considering raising prices by 1c, staying with their current prices, or lowering prices by 1¢. If they both make the same choice, there will be no change in their market shares, but if they make different choices, the one with the lower price will gain 8% of the market for each penny difference in their prices. Charlie Ralph

Answer 1

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Answer:

For both the gas stations three possible strategies are been considered in problem. 1. both can raise the price by 1Ac, let R represents strategy of raising the price 2. both can keep the price at same level, let S represents strategy of keeping the same price 3. both can lower the price bt 1Ac, let L represents strategy of lowering the price. Payoff conditions for both the gas stations are as below: 1. if price level for both are same than no market change. For example if the Ralph and Charlie, both considers to raise the price, than the market share will remain same. 2. if price level are different, than the player with lower price gains 8% of the market share, for example if Ralph considers to raise the price and Charlie is considering to keep the price at same level, than Charlie will gain 8% share from Ralph. If Ralph considers to raise the price and Charlie is considering to lower the price, than Charlie will gain 2 x 16 = 8% market share form Ralph.

Charlie
Ralph	R	S	L
R	0%	-8%	-16%
S	8%	0%	-8%
L	16%	8%	0%

For both the gas stations three possible strategies are been considered in problem. 1. both can raise the price by 1Ac, let R represents strategy of raising the price 2. both can keep the price at same level, let S represents strategy of keeping the same price 3. both can lower the price bt 1Ac, let L represents strategy of lowering the price. Payoff conditions for both the gas stations are as below: 1. if price level for both are same than no market change. For example if the Ralph and Charlie, both considers to raise the price, than the market share will remain same. 2. if price level are different, than the player with lower price gains 8% of the market share, for example if Ralph considers to raise the price and Charlie is considering to keep the price at same level, than Charlie will gain 8% share from Ralph. If Ralph considers to raise the price and Charlie is considering to lower the price, than Charlie will gain 2 x 16 = 8% market share form Ralph.