Consider the following payoff matrix in which the numbers in

Consider the following payoff matrix in which the numbers indicate the profit in dollars for a duop (2-firm industry) based either on a high-price or a low-price strategy Firm A High-price Low-price A $150 A $200 High-priceB $150 Firm B A- $ 90 A$100 Low-priceB S200 B S100 (a) What will be the result when each firm chooses a high-price strategy? (b) What will be the result when Firm A chooses a low-price strategy while Firm B (c) What will be the result when Firm B chooses a low-price strategy while Firm A (d) What will be the result when each firm chooses a low-price strategy? maintains a high-price strategy? maintains a high-price strategy?

Solution

a. when both the firm choose a high price strategy, each firm gets a pay off of $150.

b. In this situation firm A gets a pay off of $200 and firm B gets $90. Thus, firm A has an incentive to cut price because its getting $50 more ($200-$150) by doing so.

c. n this situation firm B gets a pay off of $200 and firm A gets $90. In this case, firm B has an incentive to cut price because its getting $50 more ($200-$150).

d. Both will get $100 each.