Edmund's Brainteasers
Problem 22
Problem 22: Competing cafés
The Ladyhead and the Northpoint cafés compete for customers. Both call in the same consultant who gives each the following advice. If you increase your prices and your competitor does the same you will both increase your profits by 5%. If you increase your prices and your competitor decreases their prices you will lose 10% of your profits and your competitor will gain 10%. If you decrease your prices and your competitor does the same you will both decrease your profits by 5%. If you decrease your prices and your competitor increases their prices, your profits will increase by 10% and your competitor's will decrease by 10%. Both know that the consultant has given the same advice to each. If both cafés make a decision as to their best strategy without consulting the other, what will they do? What will they do if they cooperate?