Suppose there are only two firms that sell smartphones, Flashfone and Pictech. T

Question

Suppose there are only two firms that sell smartphones, Flashfone and Pictech. The table that follows (known as a 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. For example, the lower-left cell shows that if Flashfone prices low and Plctech prices high, Flashfone will earn a profit of $9 million and Pictech will earn a profit of $5 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 prices low, Pictech 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 low a dominant strategy for both Flashfone and Pictech. If the firms do not collude, what strategies will they end up choosing? Flashfone will choose a low price and Pictech will choose a high price. Both Flashfone and Pictech will choose a low price. Both Flashfone and Pictech will choose a high price. Flashfone will choose a high price and Pictech will choose a low price. True or False: The game between Flashfone and Pictech is not an example of the Prisoners' Dilemma. False True

Explanation / Answer

Low, Low

Low, Low

Is a Dominant Strategy

Both will choose the low price.

True.

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