Last one is (is not, Is) 7. Using a payoff matrix to determine the equilibrium o

Question

Last one is (is not, Is)

7. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell Blu-ray players: Movietonia and Videotech. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its players. Videotech Pricing High Low High 11,11 2,18 Low 18,2 10,10 Movietonia Pricing For example, the lower-left cell shows that if Movietonia prices low and Videotech prices high, Movietonia will earn a profit of $18 million, and Videotech will earn a profit of $2 million. Assume this is a simultaneous game and that Movietonia and Videotech are both profit-maximizing firms. If Movietonia prices high, Videotech will make more profit if it chooses a_Yprice, and if Movietonia prices low, Videotech will make more profit if it chooses a_price. If Videotech prices high, Movietonia wil make more profit if t chooses a price and fide otec pr eso Moet n a l make more profit t chooses a price. Considering all of the information given, pricing low a dominant strategy for both Movietonia and Videotech.

Explanation / Answer

1. The answer is low and low since regardless of Movietonia's strategy, Videotech will always price low since it earns higher profits then.

2. The answer is low and low since regardless of Videotech' strategy, Movietonia will always price low since it earns higher profits then.

3. Pricing low is a dominant strategy for Movietonia and Videotech

4. Both will choose a low price

5. Yes, this is an example of prisoner's dilemma since choosing the dominant strategy leads to lower profits for both firms.

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