Suppose there are only two firms that sell Blu-ray players: Movietonia and Videotech. 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 players. Videotech Pricing High Low High 11, 11 2, 18 Movietonia Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that if Movietonia prices low and Videotech prices high, Movietonia will earn a profit of $18 million, and Videotech will earn a profit of $2 million. Assume this is a simultaneous game and that Movietonia and Videotech are both profit-maximizing firms. If Movietonia prices high, Videotech will make more profit if it chooses a price, and if Movietonia prices low, Videotech will make more profit if it chooses a price. If Videotech prices high, Movietonia will make more profit if it chooses a price, and if Videotech prices low, Movietonia will make more profit if it chooses a price. Considering all of the information given, pricing low a dominant strategy for both Movietonia and Videotech.
Suppose there are only two firms that sell Blu-ray players: Movietonia and Videotech. 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 players. Videotech Pricing High Low High 11, 11 2, 18 Movietonia Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that if Movietonia prices low and Videotech prices high, Movietonia will earn a profit of $18 million, and Videotech will earn a profit of $2 million. Assume this is a simultaneous game and that Movietonia and Videotech are both profit-maximizing firms. If Movietonia prices high, Videotech will make more profit if it chooses a price, and if Movietonia prices low, Videotech will make more profit if it chooses a price. If Videotech prices high, Movietonia will make more profit if it chooses a price, and if Videotech prices low, Movietonia will make more profit if it chooses a price. Considering all of the information given, pricing low a dominant strategy for both Movietonia and Videotech.
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter17: Oligopoly
Section: Chapter Questions
Problem 9PA
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