6. Using a payoff matrix to determine the equilibrium outcome Suppose there are
ID: 1109126 • Letter: 6
Question
6. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell smartphones: Flashfone and Pictech. 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 phones Pictech Pricing High 11, 11 15, 2 Low 2, 15 8, 8 High Flashfone Pricing Low For example, the lower-left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $15 million, and Pictech will earn a profit of $2 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms If Flashfone prices high, Pitech will make more profit if it chooses a high price, and if Flashfone prices low, Pitech will make more profit if it chooses a low price 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 price Considering all of the information given, pricing high a dominant strategy for both Flashfone and Pictech IS If the firms do not collude, what strategies will they oosing? is not Flashfone will choose a high price, and Pic choose a low priceExplanation / Answer
1) Low price ; Low price
2) Low price; Low price
3) is not
Because payoff is maximized when price is low.
4) Both Flashfone and Pictech will choose low price.
5) True
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