JetBlue and Delta are the only two major airlines with regularly scheduled service between New York and Nantucket. There

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JetBlue and Delta are the only two major airlines with regularlyscheduled service between New York and Nantucket. There are 900potential passengers every week, each of whom is willing to pay upto $400 for a ticket. Since the two airlines provide an essentiallyidentical (bad) service, customers simply prefer to buy from thecheaper one. (If they charge the same price, then they will splitthe market equally.)
Each airline can transport at most 1200 passengers each week.You can safely assume that each airline spends literal peanuts(i.e., zero) serving passengers; however, each passenger displacesair cargo that is worth $160 in profits to the carriers. Supposethat each airline takes a short-run perspective and only wants tomaximize each week's profits, and that neither one would considershutting down the route in the foreseeable future.
(a) What is the appropriate economic model to study pricecompetition in this market?
(b) If you use Nash equilibrium to make a prediction, what priceis each airline going to charge? Explain your reasoning.
(c) Give two possible practical means by which the airlinescould earn more than predicted in (b).
(d) If construction-related traffic congestion at LaGuardiaairport makes Delta's cargo business less attractive to shipperswhile JetBlue's JFK-based operations remain unaffected, how willyour prediction in (b) change? Explain.
From now on, focus on the baseline setting where both airlinesface the same tradeoff between passengers and cargo: each passengerdisplaces cargo worth $160 in profits. However, suppose that themarket size has doubled and there are now 1800 potential customers,but each airline's capacity of 1200 passengers remains unchanged.As a result, neither Delta nor JetBlue can serve the whole marketalone.
(e) Is it a Nash equilibrium for each airline to charge a priceof $160 per passenger? Justify your answer.
(f) Is it a Nash equilibrium for each airline to charge a priceof $400 per passenger? Justify your answer.
Another carrier, American Airlines, also begins serving the NewYork to Nantucket route. Because their fleet has suffered from thegrounding of the 737MAX, it can only carry 800 passengers on thisroute each week. Of course, as we established in class, domesticair carriers in the US are all equally bad, so passengers stillprefer to buy the cheapest ticket possible (splitting the marketequally between any airlines charging the same price), andAmerican's cargo business is no more or less profitable thanDelta's or JetBlue's. (
g) What is the Nash equilibrium of the pricing game among theseairlines. Explain.