1ST BLANK: ( HIGH / LOW ) 2ND BLANK: ( HIGH / LOW ) 3RD BLANK: ( HIGH / LOW ) 4T

Question

1ST BLANK: ( HIGH / LOW )

2ND BLANK: ( HIGH / LOW )

3RD BLANK: ( HIGH / LOW )

4TH BLANK: ( HIGH / LOW )

5TH BLANK: ( IS NOT / IS )

9. 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 11,11 15, 3 High 3, 15 Movietonia Pricing 9, 9 For example, the lower, left cell shows that if Movietonia prices low and Videotech prices high, Movietonia will earn a profit of $15 million and Videotech will earn a profit of $3 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 profit if it chooses a price, and if Movietonia prices low, Videotech will make more price If Videotech prices high, Movietonia will make more profit if it chooses a profit if it chooses a price, and if Videotech prices low, Movietonia will make more price Considering all of the information given, pricing high a dominant strategy for both Movietonia and Videotech

Explanation / Answer

If Movietone prices high, video tech will make more profit if it chooses a low price. If Movietone prices low, video tech will make a profit if it chooses a low price.

If video tech prices high, Movietone will make a profit if it chooses a low price. If video tech prices low, Movietone will make a profit if it chooses a low price.

Considering the information, price low is a dominant strategy for both players.

If both firms do not cooperate, both will end up choosing a low price.

True the game is an example of the prisoner's dilemma as the outcome which is a dominant strategy for both players is not the Pareto efficient.

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