Suppose there are only two firms that sell smartphones, Flashfone and Plctech. T

Question

Suppose there are only two firms that sell smartphones, Flashfone and Plctech. The payoff matrix that follows shows the profit (In millions of dollars) each company will earn, depending on whether it sets a high or low price for lts a profit of $10 million and Pictech will earn a profit of $3 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. phones. For example, the lower-left cll shows that if lashtone prices low and Pictech prices high, Flashfone will earn High Price Low Price High Price 8, 8 3, 10 Flashfone 10, 3 5, 5 If Flashfone prices high, Pictech will make more profit if it chooses a Pictech will make more profit if it chooses a price, and if Flashfone prices low, price. If Pictech prices high, Flashfone will make more profit if it choosesa Flashfone will make more profit if it chooses a price, and if Pictech prices low, price Considering all of the information given, pricing high Pictech. a dominant strategy for both Flashfone and If the firms do not collude, what strategies will they end up choosing? O Flashfone will choose a low price and Pictech will choose a high price. O Both Flashfone and Pictech will choose a high price. O Flashfone will choose a high price and Pictech will choose a low price O Both Flashfone and Pictech will choose a low price.

Explanation / Answer

If flashtone charges high price then pichtech will make more profit by charging low price and if Flashtone prices low then also Pictech makes more profit if it chooses low price

If pichtech choose high price. Flashtone will choose low price and if pichtech chhose low price then also Flashtone will charge low price.

Thus pricing high is not a dominant strategy for both

Low pricing is a dominant strategy for both.

Ans is D. Both end up choosing low price

True

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