Dell and Sony compete primarily by price. Each firm must choose either a high price or a low price simultaneously. Use the following information to create the profit matrix: If Dell and Sony both set high prices, Dell’s profit is $40 million and Sony’s profit is $35 million. If Dell sets high price and Sony sets low price, Dell’s profit is $25 million and Sony’s profit is $40 million. If Dell sets low price and Sony sets high price, Dell’s profit is $50 million and Sony’s profit is $10 million. If Dell and Sony set low prices, Dell has $20 million and Sony has $15 million. Please answer the follow questions: Does Sony have a dominant strategy? Dell? If so, which one? If Dell and Sony maximize their profits non-cooperatively, what is the Nash-equilibrium for this profit matrix? Instead, if Dell and Sony maximize their joint profits cooperatively, what is the equilibrium? Assume they keep their agreements.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter13: best-practice Tactics: Game Theory
Section: Chapter Questions
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Dell and Sony compete primarily by price. Each firm must choose either a high price or a low price simultaneously. Use the following information to create the profit matrix:

  1. If Dell and Sony both set high prices, Dell’s profit is $40 million and Sony’s profit is $35 million.
  2. If Dell sets high price and Sony sets low price, Dell’s profit is $25 million and Sony’s profit is $40 million.
  3. If Dell sets low price and Sony sets high price, Dell’s profit is $50 million and Sony’s profit is $10 million.
  4. If Dell and Sony set low prices, Dell has $20 million and Sony has $15 million.

Please answer the follow questions:

  1. Does Sony have a dominant strategy? Dell? If so, which one?
  2. If Dell and Sony maximize their profits non-cooperatively, what is the Nash-equilibrium for this profit matrix?
  3. Instead, if Dell and Sony maximize their joint profits cooperatively, what is the equilibrium? Assume they keep their agreements.
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