. Using a payoff matrix to determine the equilibrium outcome Dismiss All Please
ID: 1194204 • Letter: #
Question
. Using a payoff matrix to determine the equilibrium outcome
Dismiss All
Please Wait . . .
Please Wait...
Suppose there are only two firms that sell digital cameras, Picturesque and Capturemania. 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 cameras.
For example, the lower-left cell shows that if Picturesque prices low and Capturemania prices high, Picturesque will earn a profit of $18 million and Capturemania will earn a profit of $2 million. Assume this is a simultaneous game and that Picturesque and Capturemania are both profit-maximizing firms.
If Picturesque prices high, Capturemania will make more profit if it chooses a selector 1
high
low
price, and if Picturesque prices low, Capturemania will make more profit if it chooses a selector 2
high
low
price.
Points:
Close Explanation
Explanation:
If Capturemania prices high, Picturesque will make more profit if it chooses a selector 1
high
low
price, and if Capturemania prices low, Picturesque will make more profit if it chooses a selector 2
high
low
price.
Points:
Considering all of the information given, pricing low selector 1
is
is not
a dominant strategy for both Picturesque and Capturemania.
Points:
If the firms do not collude, what strategies will they end up choosing?
--Both Picturesque and Capturemania will choose a high price.
--Picturesque will choose a high price and Capturemania will choose a low price.
--Picturesque will choose a low price and Capturemania will choose a high price.
--Both Picturesque and Capturemania will choose a low price.
True or False: The game between Picturesque and Capturemania is not an example of the prisoners' dilemma.
True
False
Capturemania Pricing High Low Picturesque Pricing High 11, 11 2, 18 Low 18, 2 10, 10Explanation / Answer
Yes it is a game of Prisoner's Dilemma.
The nash equlibirium of the game can be found out using dominant strategy framework. Both players have LOW pricing as the dominant strategy, hence the Nash Eqilibrium is (low,low)=(10,10).
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.