Player Preference for the High-Price Equilibrium in the Windsurfing/Kitesurfing Game
In the windsurfing/kitesurfing pricing game, both firms find the (High Price, High Price) equilibrium more desirable. This preference is due to the fact that this outcome results in substantially greater profits for each company compared to the alternative (Low Price, Low Price) equilibrium.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.7 The firm and its customers - The Economy 2.0 Microeconomics @ CORE Econ
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Activity: Determining Wanda's Optimal Price Based on Kit's Expected Price
Player Preference for the High-Price Equilibrium in the Windsurfing/Kitesurfing Game
Pricing Trade-off in the Windsurfing/Kitesurfing Game
Figure 7.24: Demand and Profit Payoffs in the Wanda-Kit Pricing Game
The Windsurfing/Kitesurfing Game as a Coordination Game
Describing Market Disequilibrium
Two firms, Wanda's Windsurfing and Kit's Kitesurfing, compete on price. Each firm can set either a high price of €36 or a low price of €20. The cost to rent out one board is €10 for both firms. Market demand depends on the prices both firms choose. Specifically, if one firm sets a low price and the other sets a high price, the low-price firm rents to 49 customers, while the high-price firm rents to 11 customers. Given this, calculate Wanda's daily profit if she sets a low price (€20) and Kit sets a high price (€36).
Two firms, a windsurfing rental shop and a kitesurfing rental shop, are the only providers in a local market. Each must decide whether to set a high price (€36) or a low price (€20) for a daily rental. The cost for each rental is €10. The market consists of some customers who are loyal to one sport regardless of price, and others who are price-sensitive and will choose the cheaper option. What is the fundamental strategic trade-off each firm faces when setting its price?
Two competing watersport rental shops, one for windsurfing and one for kitesurfing, must each decide whether to set a high price (€36) or a low price (€20) for a daily rental. The cost per rental is €10 for both. The market's response to their pricing is as follows:
- If both set a high price, they collectively rent to 40 customers.
- If both set a low price, they collectively rent to 60 customers.
- If one sets a high price and the other a low price, the high-price shop rents to 11 customers and the low-price shop rents to 49.
Analyze these outcomes to determine which pricing combination generates the highest total profit for the entire market (i.e., the sum of both shops' profits).
Worst-Case Profit Analysis in a Pricing Game
Two competing watersport rental shops, one for windsurfing and one for kitesurfing, operate in a market with 60 potential customers. When one shop sets a high price and the other sets a low price, the shop with the high price rents to 11 customers, while the shop with the low price rents to 49 customers. What does this specific outcome reveal about the nature of the customers in this market?
Two competing firms, a windsurfing shop and a kitesurfing shop, must decide whether to set a high price (€36) or a low price (€20) for a daily rental. The cost per rental is €10 for both.
- If the windsurfing shop sets a high price while the kitesurfing shop sets a low price, the windsurfing shop rents to 11 customers.
- If both shops set a low price, they split the market of 60 customers equally.
Given this information, if the windsurfing shop manager believes the kitesurfing shop will set a low price, which pricing strategy should the windsurfing shop choose to maximize its own profit, and what will that profit be?
Evaluating a Pricing Strategy Claim
Impact of a Cost Change on Profitability
Two competing watersport rental shops, one for windsurfing and one for kitesurfing, are currently both charging a high price of €36 per day. At this price, they share the market of 40 customers equally. The cost per rental is €10. If the windsurfing shop unilaterally decides to lower its price to €20, it will attract 49 customers. What is the net effect on the windsurfing shop's daily profit from making this price change?
Two competing watersport rental shops, one for windsurfing and one for kitesurfing, must each decide whether to set a high price (€36) or a low price (€20) for a daily rental. The cost per rental is €10 for both. The market's response to their pricing is as follows:
- If both set a high price, they collectively rent to 40 customers.
- If both set a low price, they collectively rent to 60 customers.
- If one sets a high price and the other a low price, the high-price shop rents to 11 customers and the low-price shop rents to 49.
Analyze these outcomes to determine which pricing combination generates the highest total profit for the entire market (i.e., the sum of both shops' profits).
Learn After
Risk of the High-Price Strategy in the Windsurfing/Kitesurfing Game
Two competing firms, Firm A and Firm B, are deciding whether to set a high price or a low price for their similar products. The profits for each firm based on their combined decisions are shown in the table below (Firm A's profit, Firm B's profit). The situation has two stable outcomes where neither firm has an incentive to change its price unilaterally: one where both set a high price, and another where both set a low price.
Firm B: High Price Firm B: Low Price Firm A: High Price ($50k, $50k) ($10k, $60k) Firm A: Low Price ($60k, $10k) ($20k, $20k) Based on this information, why would both firms prefer the (High Price, High Price) outcome over the (Low Price, Low Price) outcome?
Strategic Pricing for Two Tech Gadget Companies
Explaining Equilibrium Preference in a Pricing Game
Consider a pricing game between two firms where each can choose to set a high price or a low price for their competing products. The table below shows the profits for each firm based on their combined decisions (Firm A's profit, Firm B's profit). The game has two stable outcomes where neither firm has an incentive to change its price if the other firm's price remains the same: one where both set a high price, and another where both set a low price.
Firm B: High Price Firm B: Low Price Firm A: High Price ($100, $100) ($15, $110) Firm A: Low Price ($110, $15) ($40, $40) Statement: Because both (High Price, High Price) and (Low Price, Low Price) are stable outcomes, both firms would be equally satisfied with either result.
Two competing firms, 'AquaRush' and 'WaveRider', are deciding whether to set a high or low price for their new jet skis. The table below shows the weekly profits for each firm based on their combined decisions (AquaRush's profit, WaveRider's profit). Match each potential price combination (outcome) with its correct description based on the profit data provided.
WaveRider: High Price WaveRider: Low Price AquaRush: High Price ($80k, $80k) ($20k, $90k) AquaRush: Low Price ($90k, $20k) ($35k, $35k) Evaluating a Strategic Pricing Decision
In a business scenario where two competing firms can either set a high price or a low price, and both (High Price, High Price) and (Low Price, Low Price) are stable outcomes, the high-price outcome is preferred by both firms because it results in greater ______ for each company.
Imagine you are a manager for one of two competing firms. Your market has two potential stable outcomes: one where both firms set a high price, and another where both firms set a low price. Arrange the following steps into the correct logical sequence you would use to determine which of these two stable outcomes is preferable for your company.
Evaluating a CEO's Strategic Rationale
Two competing companies, 'Peak' and 'Summit,' sell high-end tents. They can each set a 'High Price' or a 'Low Price.' The market has two stable outcomes where neither firm has an incentive to unilaterally change its price: one where both firms set a high price, and another where both set a low price. It is also known that both Peak and Summit would rather be in the (High Price, High Price) situation than the (Low Price, Low Price) situation.
Given this information, which of the following statements about the firms' profits must be true?