Two firms, A and B, entered the bike sharing market and have to decide on the amount of bikes to provide. Each firm can

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Two Firms A And B Entered The Bike Sharing Market And Have To Decide On The Amount Of Bikes To Provide Each Firm Can 1 (32.23 KiB) Viewed 69 times

Two firms, A and B, entered the bike sharing market and have to decide on the amount of bikes to provide. Each firm can deploy either 100 or 200 bikes. Assume that it costs both firms $10 per bike to deploy. The firm's revenue will be $18 per bike if there are 200 bikes (in total) in the market; $15 per bike if there are 300 bikes in the market, and $11 per bike if there are 400 bikes in the market. (a) Establish the payoff matrix for profit earned and strategies faced by Aand B. Solve for the Nash Equilibrium. (b) Fim A could invest in a machine that would lower the cost per bike from $10 to $5 (for A only). Other things being equal, if A invests in the machine, what will be the Nash Equilibrium of the game? (C) What is the maximum Price Firm A should pay for the investment in the machine?