Question

1. Consider AirTrain and BigJet, two airlines that currently fly non-stop flights on a route from Pittsburgh to Orlando. The airlines must (simultaneously) choose one of two possible flight times (9am or 4pm) in order to appeal to different customer groups. Demand is thin on this particular route so if they both choose the same flight time market price will be driven down (along with their expected payoffs).    Assume that if they choose different times each can expect a payoff (net profit) of $10000 for the day. If the choose the same style, each will receive a payoff of only $5000.\
   1. illustrate the game in normal (matrix) form and find the pure strategy Nash equilibria.
   2. How might the airlines coordinate?   Would such a coordination strategy likely be sustainable? Why or why not?
   3. Would your answer to (b) change if the payoff for being the only airline in flying at 9am was $20000, while being the only at 4pm remained $10000?

Please show all steps when answering the question.

Answer 1