Exercise: Fare Wars Game
Consider the following
The decsion makers (players) are: British Airways and KLM.
The choice is to cut fares by 25% or leave fares alone.
- If both airlines cut fares, each airline's profit = $200 million
- If neither airline cuts fares, each airline's profit = $300 million
- If only one airline cuts its fares, its profit = $500 million
the other airline' profits = $100 million
Question:
Draw the payoff matrix and find the Nash equilibrium.
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