Exercise on Fare Wars Game: Solutions

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

Questions: Draw the payoff matrix and find the Nash equilibrium.

Solution:
Nash equilibrium: cut both firms fares

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Date of last modification: 2019