Panther Airlines (PA) is the only airline that flies several routes. They have a potential competitor, Leopard Airlines (LA) who are considering entering these markets. PA maintains some excesscapacityas an entry deterrent and is eurrently earning $1 Om profit. PA signals that if LA enters these markets, theywill drop their prices. PA's profits will fall to $2m and LA will make a loss of $5m. If PA drops its prices and LA does not enter the markets, PA will earn $3m in profit. If PA were to accommodatethe new entranl, they would each earn $5m profit. i. Draw up the payoffmatrix for this game.ii. Do PA and LA have dominant strategies? Explain your answer.iii. What is the Nash equilibrium? Explain your answer.
Panther Airlines (PA) is the only airline that flies several routes. They have a potential competitor, Leopard Airlines (LA) who are considering entering these markets. PA maintains some excesscapacityas an entry deterrent and is eurrently earning $1 Om profit. PA signals that if LA enters these markets, theywill drop their prices. PA's profits will fall to $2m and LA will make a loss of $5m. If PA drops its prices and LA does not enter the markets, PA will earn $3m in profit. If PA were to accommodatethe new entranl, they would each earn $5m profit.
i. Draw up the payoffmatrix for this game.ii. Do PA and LA have dominant strategies? Explain your answer.iii. What is the Nash equilibrium? Explain your answer.
Step by step
Solved in 5 steps with 21 images
