8. Using a payoff matrix to determine the equilibrium outcome Suppose there are

Question

8. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell smart phones, 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 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 profit-maximizing firms. If Flashfone prices high, Pictech will make more profit if it chooses a price, and if Flashfone pnces low, Pctech will make more profit if it chooses a 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 lowa dominant strategy for both Flashfone and Pictech. (Note: A dominant strategy is a strategy that is best for a player regardless of the strategies chosen by the other players.)

Explanation / Answer

Low

Low

Low

Low

Low

C) both flashphone and pitech will choose a low price

False

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