American Airlines and Braniff Airways are the two airlines operating flights from your region. Suppose that each company can charge either a high price for tickets or a low price. First, American Airlines will choose the price level. Following this, Braniff Airways will observe its competitor’s decision and choose the price level for its tickets. If both of the companies choose High, they earn $25,000 each. If they both choose Low, they earn $18,000 each. If the companies choose different levels of prices, the one choosing the high price will earn $15,000 and the one choosing Low will earn $30,000. a) Draw the game three. b) Solve the game by using backwards induction. c) If Braniff Airlines makes a promise to choose High if American Airlines chooses High, should American Airlines trust this promise? Explain.
American Airlines and Braniff Airways are the two airlines operating flights from your region. Suppose that each company can charge either a high
a) Draw the game three.
b) Solve the game by using backwards induction.
c) If Braniff Airlines makes a promise to choose High if American Airlines chooses High, should American Airlines trust this promise? Explain.
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