Suppose there are only two firms that sell smartphones: Flashfone and Pictech. 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 phones. Pictech Pricing High Low High 11, 11 3, 15 Flashfone Pricing Low 15, 3 9, 9 For example, the lower-left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $15 million, and Pictech will earn a profit of $3 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. If Flashfone prices high, Pictech will make more profit if it chooses a price, and if Flashfone prices low, Pictech will make more profit if it
Suppose there are only two firms that sell smartphones: Flashfone and Pictech. 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 phones. Pictech Pricing High Low High 11, 11 3, 15 Flashfone Pricing Low 15, 3 9, 9 For example, the lower-left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $15 million, and Pictech will earn a profit of $3 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. If Flashfone prices high, Pictech will make more profit if it chooses a price, and if Flashfone prices low, Pictech will make more profit if it
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter15: Strategic Games
Section: Chapter Questions
Problem 5MC
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Transcribed Image Text:If the firms do not collude, what strategies will they end up choosing?
Both Flashfone and Pictech will choose a low price.
Flashfone will choose a high price, and Pictech will choose a low price.
Flashfone will choose a low price, and Pictech will choose a high price.
Both Flashfone and Pictech will choose a high price.
True or False: The game between Flashfone and Pictech is not an example of the prisoners' dilemma.
True
False
Transcribed Image Text:6. Using a payoff matrix to determine the equilibrium outcome
Suppose there are only two firms that sell smartphones: Flashfone and Pictech. 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 phones.
Pictech Pricing
High
Low
High
11, 11
3, 15
Flashfone Pricing
Low
15, 3
9, 9
For example, the lower-left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $15 million, and Pictech will
earn a profit of $3 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms.
If Flashfone prices high, Pictech will make more profit if it chooses a
v price, and if Flashfone prices low, Pictech will make more profit if it
chooses a
price.
If Pictech prices high, Flashfone will make more profit if it chooses a
v price, and if Pictech prices low, Flashfone will make more profit if it
chooses a
v price.
Considering all of the information given, pricing high
a dominant strategy for both Flashfone and Pictech.
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