Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Alpha's strategy is a Nash Equilibrium because they cannot benefit from changing their bid.
B
Beta's strategy is a Nash Equilibrium as they can improve their outcome by changing their bid.
C
There is no Nash Equilibrium because both firms can improve their bids.
D
The scenario describes a situation where both firms are equally likely to win regardless of their bids.
Understanding the Answer
Let's break down why this is correct
Answer
In this situation, a Nash Equilibrium occurs when neither firm can improve their outcome by changing their strategy, given the strategy of the other firm. Initially, Alpha bids low and wins, while Beta bids high and loses. However, if Beta discovers that by switching to a low bid they can win the contract, it indicates that the original strategies are not stable. This means that the situation is not a Nash Equilibrium because Beta has an incentive to change their bid. For example, if Alpha bids $100 and Beta bids $150, and Beta realizes they could win by bidding $90, both firms would need to adjust their strategies for a stable outcome.
Detailed Explanation
Alpha's low bid is stable. Other options are incorrect because This option suggests Beta is happy with their high bid; This option thinks both can improve.
Key Concepts
Nash Equilibrium
Competitive Strategy
Bidding Strategy
Topic
Nash Equilibrium in Game Theory
Difficulty
easy level question
Cognitive Level
understand
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