Consider a remote town in which two restaurants, All-You-Can-Eat
Cafe? and GoodGrub Diner, operate in a duopoly. Both restaurants
disregard health and safety regulations, but they continue to have
customers because they are the only restaurants within 80 miles of
town. Both restaurants know that if they clean up, they will
attract more customers, but this also means that they will have to
pay workers to do the cleaning.
If neither restaurant cleans, each will earn $12,000;
alternatively, if they both hire workers to clean, each will earn
only $9,000. However, if one cleans and the other doesn't, more
customers will choose the cleaner restaurant; the cleaner
restaurant will make $16,000, and the other restaurant will make
only $4,000.
Complete the following payoff matrix using the previous
information. (Note: All-You-Can-Eat Cafe? and GoodGrub Diner are
both profit-maximizing firms.)
|
Clean ups
|
GoodGrub Diner |
|
Doesn't
Clean up
|
|
cleanup________________
__________
Doesn't clean
up_________
__________
|
|
____________
____________
____________
_____________
|
|
|
|
If All-You-Can-Eat Cafe? and GoodGrub Diner decide to collude,
the outcome of this game is as follows: All-You-Can-Eat Cafe?
and GoodGrub Diner
.
If both restaurants decide to cheat and behave noncooperatively,
the outcome reflecting the unique Nash equilibrium of this game is
as follows: All-You-Can-Eat Cafe?
, and GoodGrub Diner
.
dr.two
