Question

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
Flashfone Pricing	High	8, 8	4, 13
	Low	13, 4	7, 7

For example, the lower-left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $13 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.

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 a   price.

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.

Considering all of the information given, pricing high   a dominant strategy for both Flashfone and Pictech.

If the firms do not collude, what strategies will they end up choosing?

Both Flashfone and Pictech will choose a low price.

Both Flashfone and Pictech will choose a high price.

Flashfone will choose a low price, and Pictech will choose a high price.

Flashfone will choose a high price, and Pictech will choose a low price.

True or False: The game between Flashfone and Pictech is not an example of the prisoners’ dilemma.

True

False

Answer 1

Blanks-

1) low

2) low

3) low

4) low

5) is not

-Both Flashfone and Pictech will choose a low price.

The statement is False