Two competing firms in a duopoly must decide whether or not to offer consumers a coupon for their good. The payoff matrix above represents the daily profit available to the firms under the different coupon strategies
a. What strategies and payoffs are represented by quadrant A?
b. What strategy will Firm 1 pursue if it believes that Firm 2 is offering a coupon?
c. What quadrant represents the equilibrium that will result if the firms act independently (compete)?
d. What quadrant represents the equilibrium that will result if the firms successfully collude?
a. In quadrant A, Firm 1 offers a coupon while Firm 2 does not. As a result, Firm 1 earns $150 in profits and Firm 2 earns $60.
b. If Firm 2 is offering a coupon and Firm 1 does not, Firm 1 will earn $75. If Firm 1 also offers a coupon, it will earn $100. Therefore, Firm 1 will also offer a coupon.
c. Quadrant C.
d. Quadrant B.
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Even if two products have different characteristics, such as color, the products are only considered heterogeneous if consumers
A) consider the two products as perfect complements. B) consider the two products as perfect substitutes. C) consider the two products as imperfect substitutes. D) consider the two products as imperfect complements.