Suppose there are only two firms that sell smart phones, Flashfone and Pictech.

Question

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. 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 prices low, Pictech will make more profit if it If Pictech prices high, Flashfone will make more profit if it chooses a chooses a price, and if Pictech prices low, Flashfone will make more profit if it If the firms do not collude, what strategies will they end up choosing? Both Flashfone and Pictech will choose a low 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 high price. True or False: The game between Flashfone and Pictech is an example of the prisoners' dilemma. True False

Explanation / Answer

1.

a. Low

b. Low

Explanation:

Adopting low pricing by other firm will increase the payoff as shown in the figure in question.

2.

a. Low

b. Low

Explanation:

Adopting low pricing by other firm will increase the payoff as shown in the figure in question.

3.

Considering all the information, pricing high creates / forms a dominant strategy for both flashfone and pictech.

Explanation:

Here, firms have to collude then both firms can set high prices and earn high profit.

4.

Correct Answer:

Both flashfone and pictech will choose a low price.

Pl. repost other unanswered questions for their answers.

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