Roland's Barber Shop and Charley's Barber Shop are both located in the business district of a certain town. Roland estimates that if he raises the price of a haircut by $1, he will increase his market share by 3% if Charley raises his price by the same amount; he will decrease his market share by 4% if Charley holds his price at the same level; and he will decrease his market share by 1% if Charley lowers his price by $1. If Roland keeps his price the same, he will increase his market share by 6% if Charley raises his price by $1; he will keep the same market share if Charley holds the price at the same level; and he will decrease his market share by 2% if Charley lowers his price by $1. Finally, if Roland lowers the price he charges by $1, his market share will increase by 4% if Charley raises his prices by the same amount; he will increase his market share by 5% if Charley holds his price at the same level; and he will increase his market share by 2% if Charley lowers his price by $1.
(a) Construct the payoff matrix for this game. (Enter the values as integer percents. So 1% would be entered as 1.)
Charley
raise hold lower
Roland raise

hold

lower




(b) Is the game strictly determined?
Yes
No

(c) If neither party is willing to lower the price he charges for a haircut, what is the optimal strategy for each barber?
The optimal strategy for Roland is to raise his prices, while the optimal strategy for Charley is to keep prices the same.
The optimal strategy for each barber is to keep prices the same.
The optimal strategy for each barber is to raise prices.
The optimal strategy for Roland is to keep prices the same, while the optimal strategy for Charley is to raise prices.
There is no optimal strategy since the game is not strictly determined.