Equilibrium Tuition price for equal University competition

by Raymond Fajardo

Submitted : Spring 2015

In order to compute the price that each university should charge in order to equally compete for students one must first determine the marginal cost both USF and UCF incur per student. Then, determine the players (USF and UCF), their actions (Prices they each can propose) P_USF, P_UCF, and determined the payoffs as a form of prices by determining the demand function for each university. Afterwards, one must compute the best response function as a function of prices (by determining the point of the function that maximizes profit (area of curve where F’(x)=0) and lastly determine the Nash Equilibrium by plugging in the best response functions into each universities P^Br . The Nash equilibrium price will represent the strategically stable price each university can use that will allow them to equally compete for the same student talent based on each student’s location along the I-4 highway. Also, one must create a game matrix regarding both USF and UCF and calculate whether or not either Bertrand competitor has an incentive to cheat (where the benefits of cheating outweigh the risks.)

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