For fill ins all high or low except the last one which is \"is or is not\" Suppo
ID: 1132544 • Letter: F
Question
For fill ins all high or low except the last one which is "is or is not"
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 3,15 9, 9 Flashfone Pricing Low 15, 3 For example, the lower left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $15 milion and Pictech will earn a profit of $3 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 aprice, and if Flashfone prices low, Pictech will make more profit if it chooses aprice. 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 higha dominant strategy for both Flashfone and Pictech. If the firms do not collude, which strategy will they end up choosing? Both Flashfone and Pictech will choose a high 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 low price.Explanation / Answer
1. If Flashfone prices high pitchtech will make more profit if it chooses a LOW price, and if Flashfone prices low pitchtech will make more profit if it chooses a LOW price.
Because if Flashfone prices high, pitchtech will make more profit of $15 if it chooses low. If Flashfone prices low pitchtech will make more profit i.e $9 if it chooses a low price.
2. If pitchtech prices high flashfone will make more profit if it chooses a LOW price, and if pitchtech prices low flashfone will make more profit if it chooses a LOW price.
Because if pitchtech prices high, flahfone will make more profit of $15 if it chooses low. If pitchtech prices low flashfone will make more profit i.e $9 if it chooses a low price.
3. Considering all information, Pricing low IS a dominant strategy for both flashfone and pitchtech.
Regardless of Pictech's pricing scheme, Flashfone earns more profit when it chooses a low price and vice versa. Therefore, pricing low is a dominant strategy for both Flashfone and Pictech.
4. If the firms do not collude Both Flashfone and Pictech will choose a low price.
Each firm has the incentive to set a low price because each firm will earn more profit if it sets a low price, regardless of the price the other firm sets.
5. False .
The game between Flashfone and Pictech is an example of the Prisoners' Dilemma. This is correct.
When each firm acts in its own self-interest and prices low to maximize its individual profit, each firm earns a profit of $9 million. However, both firms would be better off if they both chose a high price, because each would earn $11 million. Just as in the prisoners' dilemma, the firms would be better off if they both chose the alternative option (in this case, a high price); however, each firm has the individual incentive to choose a low price.
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