Two rival olio palmists in the athletic supplements industry, the Power Fuel Com

Question

Two rival olio palmists in the athletic supplements industry, the Power Fuel Company and the Brawny Juice Company, have to decide on their pricing strategy. Each can choose either a high price or a low price. The table to the right shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. If Brawny Juice selects a high price, what is Power Fuel's best strategy and what will Power Fuel earn as a result of this strategy? Power Fuel will select a high price and earn S16 million. Power Fuel will select a low price and earn S16 million. Power Fuel will select a high price and earn $12 million. Power Fuel will select a low price and earn S8 million.

Explanation / Answer

Solution: B Power Fuel will select a low price and earn $16 million

Explanation: Oligopolistic is a market form where sellers are so few that the actions of any one of them will materially affect price, thus if Brawny Juice selects a high price, Power Fuel's best strategy would be to set low price and earn a revenue of $16 million

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