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

Question

Using a payoff matrix to determine the equilibrium outcome 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_____price, and if Picturesque prices low, Capturemania will make more profit if it chooses a_____price. If Capturemania prices high, Picturesque will make more profit if it chooses a_____price, and if Capturemania prices low, Picturesque will make more profit if it chooses a_____price. Considering all of the information given, pricing low_____a dominant strategy for both Picturesque and Capturemania. If the firms do not collude, which strategy will they end up choosing? Picturesque will choose a high price and Capturemania will choose a low price. Both Picturesque and Capturemania will choose a low price. Both Picturesque and Capturemania will choose a high price. Picturesque will choose a low price and Capturemania will choose a high price. True or False: The game between Picturesque and Capturemania is an example of the prisoners' dilemma. True False

Explanation / Answer

Lower

Lower

Lower

Lower

Price

Both will choose a low price as there is no collusion

True

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