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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 $10 million and Pictech will earn a profit of $4 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. Pictech High Price Low Price High Price 9,9 4, 10 Flashfone Low Price 10, 4 6, 6 high or low 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 chooses price. high or low high or low If Pictech prices high, Flashfone will make more profit if it chooses a ▼ price, and if Pictech prices low, Flashfone will make more profit if it chooses price. high or low is not or is Considering all of the information given, pricing low v a dominant strategy for both Flashfone and Pictech. If the firms do not collude, what strategies will they end up choosing? Flashfone will choose a low price and Pictech will choose a high price. O Both Flashfone and Pictech will choose a high price. O Flashfone will choose a high price and Pictech will choose a low price. O Both Flashfone and Pictech will choose a low price. True or False: The game between Flashfone and Pictech is an example of the prisoners' dilemma. O True O False

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 $10 million and Pictech will earn a profit of $4 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. Pictech High Price Low Price High Price 9,9 4, 10 Flashfone Low Price 10, 4 6, 6 high or low 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 chooses price. high or low high or low If Pictech prices high, Flashfone will make more profit if it chooses a ▼ price, and if Pictech prices low, Flashfone will make more profit if it chooses price. high or low is not or is Considering all of the information given, pricing low v a dominant strategy for both Flashfone and Pictech. If the firms do not collude, what strategies will they end up choosing? Flashfone will choose a low price and Pictech will choose a high price. O Both Flashfone and Pictech will choose a high price. O Flashfone will choose a high price and Pictech will choose a low price. O Both Flashfone and Pictech will choose a low price. True or False: The game between Flashfone and Pictech is an example of the prisoners' dilemma. O True O False

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter15: Oligopoly And Strategic Behavior
Section: Chapter Questions
Problem 14P
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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 $10 million and Pictech will earn a profit of $4 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. Pictech High Price Low Price High Price 9, 9 4, 10 Flashfone Low Price 10, 4 6, 6 high or low 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 chooses price. high or low high or low If Pictech prices high, Flashfone will make more profit if it chooses a price, and if Pictech prices low, Flashfone will make more profit if it chooses a price. high or low is not or is Considering all of the information given, pricing low a dominant strategy for both Flashfone and Pictech. If the firms do not collude, what strategies will they end up choosing? Flashfone will choose a low price and Pictech will choose a high price. Both Flashfone and Pictech will choose a high price. O Flashfone will choose a high price and Pictech will choose a low price. O Both Flashfone and Pictech will choose a low price. True or False: The game between Flashfone and Pictech is an example of the prisoners' dilemma. True O False
Transcribed Image Text: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 $10 million and Pictech will earn a profit of $4 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. Pictech High Price Low Price High Price 9, 9 4, 10 Flashfone Low Price 10, 4 6, 6 high or low 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 chooses price. high or low high or low If Pictech prices high, Flashfone will make more profit if it chooses a price, and if Pictech prices low, Flashfone will make more profit if it chooses a price. high or low is not or is Considering all of the information given, pricing low a dominant strategy for both Flashfone and Pictech. If the firms do not collude, what strategies will they end up choosing? Flashfone will choose a low price and Pictech will choose a high price. Both Flashfone and Pictech will choose a high price. O Flashfone will choose a high price and Pictech will choose a low price. O Both Flashfone and Pictech will choose a low price. True or False: The game between Flashfone and Pictech is an example of the prisoners' dilemma. True O False
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