6. Using a payoff matrix to determine the equillbrium outcome Aa Aa Suppose ther

Question

6. Using a payoff matrix to determine the equillbrium outcome Aa Aa Suppose there are only two firms that sell smartphones, Flashfone and Pictech. 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 its phones. For example, the lower-left cell shows that If Flashfone prices low and Pictech prices high, Flashfone will earn 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. Pictech High Price 8, 8 LOw Price High Price 3, 10 Flashfone Low Price 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 chooses a Flash fone will make more profit if it chooses a p price, and if Pictech prices low, price. Considering all of the information given, pricing low a dominant strategy for both Flashfone and Pictech. If the firms do not collude, what strategies will they end up choosing? O Flashfone will choose a high price and Pictech will choose a low price. O Both Flashfone and Pictech will choose a low price. O Both Flashfone and Pictech will choose a high price. O Flashfone will choose a low price and Pictech will choose a high price. True or False: The game between Flashfone and Pictech is not an example of the Prisoners' Dilemma. O True O False

Explanation / Answer

If flashfone charges high price then pictech will make more profit by charging low price and if Flasfone prices low then also Pictech makes more profit if it chooses low price

If pictech choose high price. Flahfone will choose low price and if pictech chhose low price then also Flashfone 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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