Pricing Games/Prisoner’s Dilemma

  1. You really need to look at exhibits 1, 2 and 3.
  2. Given the information would you predict that Sony or Microsoft would want to reduce console prices by $100. Use a 2 by 2 shot simultaneous game to analyze this situation. Assume Nintendo is just looking in but does not act.
  3. Assume that demand curves are all linear. Calculate the own price point elasticities of demand implied by the data at prices of $299 and $399 for both Sony and Microsoft. Are your answers consistent with your understanding of short run profit maximization for firms with market power?

Can you think of reasons why these firms would be particularly aggressive in pricing their consoles?

  1. You really need to look at exhibits 1, 2 and 3.
  2. Given the information would you predict that Sony or Microsoft would want to reduce console prices by $100. Use a 2 by 2 shot simultaneous game to analyze this situation. Assume Nintendo is just looking in but does not act.
  3. Assume that demand curves are all linear. Calculate the own price point elasticities of demand implied by the data at prices of $299 and $399 for both Sony and Microsoft. Are your answers consistent with your understanding of short run profit maximization for firms with market power?

Can you think of reasons why these firms would be particularly aggressive in pricing their consoles?

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