Suppose there are only two firms that sell Blu-ray players: Movietonia and Videotech. 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 players. Videotech Pricing High Low High 11, 11 2, 18 Movietonia Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that if Movietonia prices low and Videotech prices high, Movietonia will earn a profit of $18 million, and Videotech will earn a profit of $2 million. Assume this is a simultaneous game and that Movietonia and Videotech are both profit-maximizing firms. If Movietonia prices high, Videotech will make more profit if it chooses a price, and if Movietonia prices low, Videotech will make more profit if it chooses a price. If Videotech prices high, Movietonia will make more profit if it chooses a price, and if Videotech prices low, Movietonia will make more profit if it chooses a price. Considering all of the information given, pricing low a dominant strategy for both Movietonia and Videotech.

Suppose there are only two firms that sell Blu-ray players: Movietonia and Videotech. 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 players. Videotech Pricing High Low High 11, 11 2, 18 Movietonia Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that if Movietonia prices low and Videotech prices high, Movietonia will earn a profit of $18 million, and Videotech will earn a profit of $2 million. Assume this is a simultaneous game and that Movietonia and Videotech are both profit-maximizing firms. If Movietonia prices high, Videotech will make more profit if it chooses a price, and if Movietonia prices low, Videotech will make more profit if it chooses a price. If Videotech prices high, Movietonia will make more profit if it chooses a price, and if Videotech prices low, Movietonia will make more profit if it chooses a price. Considering all of the information given, pricing low a dominant strategy for both Movietonia and Videotech.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. Using a payoff matrix to determine the equilibrium outcome

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Suppose there are only two firms that sell Blu-ray players: Movietonia and Videotech. 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 players.
Videotech Pricing
High
Low
High
11, 11
2, 18
Movietonia Pricing
Low
18, 2
10, 10
For example, the lower-left cell shows that if Movietonia prices low and Videotech prices high, Movietonia will earn a profit of $18 million, and
Videotech will earn a profit of $2 million. Assume this is a simultaneous game and that Movietonia and Videotech are both profit-maximizing firms.
If Movietonia prices high, Videotech will make more profit if it chooses a
v price, and
Movietonia prices low, Videotech will make more
profit if it chooses a
v price.
If Videotech prices high, Movietonia will make more profit if it chooses a
v price, and if Videotech prices low, Movietonia will make more
profit if it chooses a
v price.
Considering all of the information given, pricing low
v a dominant strategy for both Movietonia and Videotech.

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