Refer to the payoff matrix at right for the profits (in $ millions) of two firms

Question

Refer to the payoff matrix at right for the profits (in $ millions) of two firms (A and B) and two pricing strategies (high and low). Which of the following is the outcome of the dominant strategy without cooperation? Firm B's Price O A. Firm A chooses the low price while firm B High Low chooses the high price. Both firm A and firm B choose the low price. $5 $10 O B. C. Firm A chooses the high price while firm B High chooses the low price. Both firm A and firm B choose the high price. D. $5 $1 Firm A's Price $1 $3 Low $10 $3

Explanation / Answer

The correct answer is option D because both the players are independent of other players' decisions and therefore both the players will choose to set the higher prices without cooperation in the market.

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