Suppose there are only two firms that sell smartphones, Flashfone and Pictech. T
ID: 2496418 • Letter: S
Question
Suppose there are only two firms that sell smartphones, Flashfone and Pictech. The payoff matrix that follows 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 $8 million and Pictech will earn a profit of $1 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms Pictech High Price 6, 6 8, 1 Low Price 1, 8 3, 3 High Price Flashfone Low Price If Flashfone prices high, Pictech will make more profit if it chooses a Pictech will make more profit if it chooses a price, and if Flashfone prices low 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 it it chooses a price Considering all of the information given, pricing low a dominant strategy for both Flashfone and Pictech.Explanation / Answer
If Flashfone prices high, Pi tech will make more profit if it chooses a low price, and if Flashfone prices low, Pitech will make more profit if it chooses a LOW price.
Explanation- Suppose Flashfone prices high. If Pictech prices high, it will earn a profit of $6 million (upper-left cell). If Pictech prices low, it will earn a profit of $8 million (upper-right cell). Therefore, when Flashfone prices high, Pictech's profit will be higher if it chooses a low price. Suppose Flashfone prices low. If Pictech prices high, it will earn a profit of $1 million (lower-left cell). If Pictech prices low, it will earn a profit of $3 million (lower-right cell). Therefore, when Flashfone prices low, Pictech's profit will be higher if it chooses a low price.
If Pitech prices high, Flashfone will make a profit if chooses a low price, and if Pitech prices low Flashfone will make a profir if it chooses a low price.
Explanation: Suppose Pictech prices high. If Flashfone prices high, it will earn a profit of $6 million (upper-left cell). If Flashfone prices low, it will earn a profit of $8 million (lower-left cell). Therefore, when Pictech prices high, Flashfone's profit will be higher if it chooses a low price. Suppose Pictech prices low. If Flashfone prices high, it will earn a profit of $1 million (upper-right cell). If Flashfone prices low, it will earn a profit of $3 million (lower-right cell). Therefore, when Pictech prices low, Flashfone's profit will be higher if it chooses a low price.
Considering all the above information given, pricing low is a dominant strategy for both Flashfone and Pitech.
If the firms do not collude BOTH FLASHFONE AND PITECH WILL CHOOSE A LOW PRICE.
Explanation- Flashfone will choose a low price, then Pictech will protect itself by choosing a low price.
The game is the case of prisoners' dilemma. There is a dominant strategy. The answer is true.
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