Attempts Keep the Highest: /2 10. Using a payoff matrix to determine the equilib

Question

Attempts Keep the Highest: /2 10. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell Blu-ray players, Movietonia and Videctech. The following payoff matrix shows the profit (in m dollars) each company will earn, depending on whether it sets a high or low price for its players Videotech Pricing High Low Hgh 9,9 2,15 Low 15, 2 &,8 Movietonia Pricing For example, the lower, left cell shows that if Movietonia prices low and Videotech prices high, Movietonia will earn a profit of $15 million videotech will earn a profit of $2 million. Assume this is a simultaneous game and that Movietonia and Videotech are both profit-maximizis If Movietonia prices high, Videotech will make more profit if it chooses a profit if it chooses a price. price, and if Movietonia prices low, videotech wil mak If Videotech prices high, Movietonia will make more profit it it chooses a profit if"chooses a price. price, and if videotech prices low, Mo ietania wil mak Conaidering all of the information given, pricing highdominant strategy for both Movietonia and Videotech. (Note: A is a strategy that is best for a player regardless of the strategies chosen by the other players.) If the firms do not collude, which strategy will they end up choosing? Movietonia will choose a high price and Videotech will choose a low price. O Movletonia will choose a low price and Videotech will choose a high price. Both Movietonia and Videotech will choose a low price. Both Movietonia and Videotech will choose a high price.

Explanation / Answer

A game is strategic interaction between two players. The set of strategies are the option that the player have while playing the game. There is definite payoff for each player of the attaching to each strategy given the strategy of its opponent. The strategy that the player plays irrespective of its opponent strategy is called the dominant strategy. The strategy that the player never plays is dominated strategy. A Prisoner's dilemma is a equilibrium outcome of a game which is not optimal to any one of the player. That is in Nash equilibrium under Prisoner's dilemma it is possible to increase the wellbeing of at least one player by deviating from the equilibrium.

If M prices high, V will make more profit if it chooses low price, and M prices low, V will make more profit if chooses low price.

If V prices high, M will make more profit if it chooses low price, and V prices low, M will make more profit if chooses low price.

Cosidering all the information given pricing high is not a dominant strategy for M and V.

Then if the firms do not collude both the firm will choose low price strategy. Then the correct option is

In this case it is possible to have a high payoff by choosing high price by both firms. But instead they choose "low price". This is thus a game of Prisonner's dilemma. Therefore, the statement is

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