Transportation Economics/Agents/Solution2

Problem Extension

3. What happens if there is a third price $300, for which demand is 375 passengers.

Reformulate the problem.

Solution

'	'	'	American	'
		$200	$300	$400
United	$200	[0,0]	[50000,-50000]	[50000, -50000]
	$300	[-50000, 50000]	[6250, 6250]	[62500, -50000]
	$400	[-50000, 50000]	[-50000, 62500]	[0,0]

At [300,300] Each airline gets 375/2 share = 187.5 pax * $300 = $56,250, cost remains $50,000

At [300, 400], 300 airline gets 375*300 = 112,500 - 50000

What is the equilibrium in a non-cooperative, 1 shot game? [$200,$200].

What is equilibrium in a repeated game?

Note: No longer zero sum.

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