FIGURE 14.1 Profit payoff (in millions) for a two-firm oligopoly. Each firm has two possible pricing strategies. RareAir's strategies are shown in the top margin, and Uptown's in the left margin. Each lettered cell of this four-cell payoff matrix represents one combination of a RareAir strategy and an Uptown strategy and shows the profit that combination would earn for each. Assuming no collusion, the outcome of this game is Cell D, with both parties using low-price strategies and earning $8 million of profits. RareAir's price strategy High Low $12 B $15 High $12 $6 $6 $8 Low $15 $8 Uptown's price strategy
FIGURE 14.1 Profit payoff (in millions) for a two-firm oligopoly. Each firm has two possible pricing strategies. RareAir's strategies are shown in the top margin, and Uptown's in the left margin. Each lettered cell of this four-cell payoff matrix represents one combination of a RareAir strategy and an Uptown strategy and shows the profit that combination would earn for each. Assuming no collusion, the outcome of this game is Cell D, with both parties using low-price strategies and earning $8 million of profits. RareAir's price strategy High Low $12 B $15 High $12 $6 $6 $8 Low $15 $8 Uptown's price strategy
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider a “punishment” variation of the two-firm oligopoly situation shown in Figure 14.1. Suppose that if one firm sets a low
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