6, Using a payoff matrix to determine the equilibrium ose there are only two fir

Question

6, Using a payoff matrix to determine the equilibrium ose there are only two firms that sell smartphones: shfone and Pictech. The following payoff matrix shows the profit (in millions of dollars) each compány will earn, depending on whèther it sets a high o? low price Pictech Pricing High Low High 11, 11 2, 18 Low 18,2 10, 10 Flashfone Pricing For example, the lower-left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $18 million, and Pictech will earn a profit of $2 million. Assume this is a simultaneous game and that Flashfone and Pictech are both If Flashfone prices high, Pictech will make more profit if it chooses a price, and if Flashfone prices low, Pictech will price. make more profit if it chooses a If Pictech prices high, Flashfone will make more profit if it chooses a price, and if Pictech prices low, Flashfone will make more profit if it chooses a all of the information given, high dominant strategy for both Flashfone and Pictech. If the firms do not collude, what strategies will they end up choosing? Both Flashfone and Pictech will choose a low price Flashfone will choose a low price, and Pictech will choose a high price Flashfone will choose a high price, and Pictech will choose a low price Both Flashfone and Pictech will choose a high price. True or False: The game between Flashfone and Pictech is not an example of the prisoners' dilemma. True o False

Explanation / Answer

1) Low price because low price gives payoff of $ 18 while high price pays payoff of $ 11 only.

2) Low price because it gives profit of $ 10 which is greater than the payoff of $ 2.

3) Low price because it gives payoff of 18 which is greater than 11 by charging high price.

4) Low price because it gives higher payoff to flashfone.

5) Low price is the dominant strategy because it maximises payoff.

6) Both Flashfone and Pictech will choose a low price.

7) False

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