Synergy Co. and Durham Co. are the only two firms in the TVs market. The 2 firms can collude and both charge higher prices. The table below shows the profits per unit they can hope to earn based on pricing strategies. However if Synergy Co. charged a high price for their TVs and Durham Co. charged a low price, Durham Co. would gain complete market share and earn $1470 profit per unit. However, if Durham Co. thought the same way and also charged a low price, both firms would end up earning $700 per unit - lower than what they could earn if they both charged a high price (i.e., $1100). Durham Co. High price Synergy Co. High price $1100, $1100 Low price $1470 $0 Low price $0, $1470 $700 $700
Synergy Co. and Durham Co. are the only two firms in the TVs market. The 2 firms can collude and both charge higher prices. The table below shows the profits per unit they can hope to earn based on pricing strategies. However if Synergy Co. charged a high price for their TVs and Durham Co. charged a low price, Durham Co. would gain complete market share and earn $1470 profit per unit. However, if Durham Co. thought the same way and also charged a low price, both firms would end up earning $700 per unit - lower than what they could earn if they both charged a high price (i.e., $1100). Durham Co. High price Synergy Co. High price $1100, $1100 Low price $1470 $0 Low price $0, $1470 $700 $700
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Synergy Co. and Durham Co. are the only two firms in the TVs market.
The 2 firms can collude and both charge higher prices.
The table below shows the profits per unit they can hope to earn based on pricing strategies.
However if Synergy Co. charged a high price for their TVs and Durham Co. charged a low price, Durham Co. would gain
complete market share and earn $1470 profit per unit.
However, if Durham Co. thought the same way and also charged a low price, both firms would end up earning $700 per unit -
lower than what they could earn if they both charged a high price (i.e., $1100).
Synergy Co. High price
Low price
Durham Co.
High price
$1100, $1100
$1470, $0
Low price
$0, $1470
$700, $700
What would be the strategy that would maximize profit for both firms?
○Both firms collude and charge a high price
OFirms compete: One firm charges a high price while the other charges a low price
OBoth firms collude and charge a low price
ONone of these](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8d433ce-ada1-4366-a2f3-d408d6baba79%2Fa50af6b7-926f-4fda-bb0b-598973e79db7%2Fxd00uol_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Synergy Co. and Durham Co. are the only two firms in the TVs market.
The 2 firms can collude and both charge higher prices.
The table below shows the profits per unit they can hope to earn based on pricing strategies.
However if Synergy Co. charged a high price for their TVs and Durham Co. charged a low price, Durham Co. would gain
complete market share and earn $1470 profit per unit.
However, if Durham Co. thought the same way and also charged a low price, both firms would end up earning $700 per unit -
lower than what they could earn if they both charged a high price (i.e., $1100).
Synergy Co. High price
Low price
Durham Co.
High price
$1100, $1100
$1470, $0
Low price
$0, $1470
$700, $700
What would be the strategy that would maximize profit for both firms?
○Both firms collude and charge a high price
OFirms compete: One firm charges a high price while the other charges a low price
OBoth firms collude and charge a low price
ONone of these
![What is the dominant strategy in this game, most likely to take place?
OBoth firms charge a high price
One firm charges a high price while the other charges a low price
OBoth firms charge a low price
ONone of these
Collusion is difficult to achieve and maintain because
OBoth firms have an incentive to cheat and lower their price
OFirms do not wish to alienate their customers
○Both firms can achieve higher profit if they compete
ONone of these](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8d433ce-ada1-4366-a2f3-d408d6baba79%2Fa50af6b7-926f-4fda-bb0b-598973e79db7%2F0yzqqyk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:What is the dominant strategy in this game, most likely to take place?
OBoth firms charge a high price
One firm charges a high price while the other charges a low price
OBoth firms charge a low price
ONone of these
Collusion is difficult to achieve and maintain because
OBoth firms have an incentive to cheat and lower their price
OFirms do not wish to alienate their customers
○Both firms can achieve higher profit if they compete
ONone of these
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