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 $6 million and Pictech will earn a profit of $1 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. PictechHigh Price Low PriceHigh Price5, 51, 6FlashfoneLow Price6, 13, 3If Flashfone prices high, Pictech will make more profit if it chooses av price, and if Flashfone prices low, Pictech will make more profit if itchooses av price.If Pictech prices high, Flashfone will make more profit if it chooses aprice, and if Pictech prices low, Flashfone will make more profit if itchooses aprice.Considering all of the information given, pricing lowv a dominant strategy for both Flashfone and Pictech.If the firms do not collude, what strategies will they end up choosing?O Flashfone will choose a high price and Pictech will choose a low price.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.True or False: The game between Flashfone and Pictech is not an example of the prisoners' dilemma.O TrueO False

We are going to use Nash equilibria approach to answer this question.

Answered: Pictech High Price Low Price High Price…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter24: Price-searcher Markets With High Entry Barriers

Section: Chapter Questions

Problem 12CQ

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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 $6 million and Pictech will earn a profit of $1 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms.

Pictech
High Price Low Price
High Price
5, 5
1, 6
Flashfone
Low Price
6, 1
3, 3
If Flashfone prices high, Pictech will make more profit if it chooses a
v price, and if Flashfone prices low, Pictech will make more profit if it
chooses a
v 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 low
v a dominant strategy for both Flashfone and Pictech.
If the firms do not collude, what strategies will they end up choosing?
O Flashfone will choose a high price and Pictech will choose a low price.
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.
True or False: The game between Flashfone and Pictech is not an example of the prisoners' dilemma.
O True
O False

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