Question

while there is a degree of differentiation between major grocery chains like albertsons and kroger, the regular offering of sale prices by both firms for many of their products provides evidence that these firms engage in price competition. for markets where albertsons and kroger are the dominant grocers, this suggests that these two stores simultaneously announce one of two prices for a given product: a regular price or a sale price. suppose that when one firm announces the sale price and the other announces the regular price for a particular product, the firm announcing the sale price attracts 1,000 extra customers to earn a profit of $5,000, compared to the $3,000 earned by the firm announcing the regular price. when both firms announce the sale price, the two firms split the market equally (each getting an extra 500 customers) to earn profits of $2,000 each. when both firms announce the regular price, each company attracts only its 1,500 loyal customers and the firms each earn $4,500 in profits. two combinations of pricing strategies are equilibria of the pricing game described above when played once. what are they? instruction: select both strategy combinations that are an equilibrium of the pricing game. in order to receive full credit, you must make a selection for each option. for correct answer(s), click the box once to place a check mark. for incorrect answer(s), click twice to empty the box.

Answer 1

The equilibria in the pricing game for major grocery chains like Albertsons and Kroger occur when both firms either set a sale price or a regular price, as either option makes unilateral deviations unprofitable.

Step-by-step explanation:

The student's question pertains to understanding pricing strategies and equilibria in markets where major grocery chains like Albertsons and Kroger compete. Analyzing the given scenarios and outcomes of different pricing strategies—sale price vs. regular price—we can deduce the equilibria in this one-shot pricing game. Two equilibria exist: one where both firms set a sale price, earning $2,000 each; and another where both firms set a regular price, earning $4,500 each. These two strategy combinations are equilibria because in either case, if one firm deviates from the strategy, it will earn less profit based on the provided profit outcomes. Any unilateral change in pricing strategy leads to lower profits, thus maintaining the equilibrium.