4. Using a payoff matrix to determine the equilibrium outcome
Suppose there are only two firms that sell tablets: Padmania and Capturesque. 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 tablets.
Capturesque Pricing High Low Padmania Pricing High 11, 11 2, 18 Low 18, 2 10, 10
For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $18 million, and Capturesque will earn a profit of $2 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms.
If Padmania prices high, Capturesque will make more profit if it chooses a high/low price, and if Padmania prices low, Capturesque will make more profit if it chooses a high/low price.
If Capturesque prices high, Padmania will make more profit if it chooses a high/low price, and if Capturesque prices low, Padmania will make more profit if it chooses a high/low price.
Considering all of the information given, pricing high is/ is not a dominant strategy for both Padmania and Capturesque.
If the firms do not collude, what strategies will they end up choosing? (can have more than 1 answer)
a.Both Padmania and Capturesque will choose a high price.
b.Both Padmania and Capturesque will choose a low price.
c.Padmania will choose a low price, and Capturesque will choose a high price.
d.Padmania will choose a high price, and Capturesque will choose a low price.
True or False: The game between Padmania and Capturesque is an example of the prisonersâ dilemma.
True
False
| 4. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell tablets: Padmania and Capturesque. 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 tablets.
For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $18 million, and Capturesque will earn a profit of $2 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms. If Padmania prices high, Capturesque will make more profit if it chooses a high/low price, and if Padmania prices low, Capturesque will make more profit if it chooses a high/low price. If Capturesque prices high, Padmania will make more profit if it chooses a high/low price, and if Capturesque prices low, Padmania will make more profit if it chooses a high/low price. Considering all of the information given, pricing high is/ is not a dominant strategy for both Padmania and Capturesque. If the firms do not collude, what strategies will they end up choosing? (can have more than 1 answer) a.Both Padmania and Capturesque will choose a high price. b.Both Padmania and Capturesque will choose a low price. c.Padmania will choose a low price, and Capturesque will choose a high price. d.Padmania will choose a high price, and Capturesque will choose a low price. True or False: The game between Padmania and Capturesque is an example of the prisonersâ dilemma. True False | |||||||||||||
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Related questions
The Coca-Cola Company (Coke) and Pepsico (Pepsi) must independently decide how much to spend on advertising this year (low, medium, or high advertising expenditures). Each firm's decision will affect its own profits, as well as the profits of its competitor. The following payoff matrix shows the possible outcomes for this game between Coke and Pepsi. Here Coke is the row player and Pepsi the column player. Coke's available strategies are listed on the left (it can choose the rows labelled Low, Medium, or High). Similarly, Pepsi's available strategies are listed at the top (it can choose the columns labelled Low, Medium, or High). Interior cells show the profits (measured in millions of dollars) for each firm, with the profits for the row player (Coke) listed first, followed by profits for the column player (Pepsi). For example, if Coke chooses a low advertising budget while Pepsi opts for a medium budget, then the profit will be $7 million for Coke and $10 million for Pepsi.
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| 1.3. | At the game's Nash equilibrium, what are the combined profits of Coke and Pepsi, measured in millions of dollars? (For example, if the answer is $14 million, enter "14.") |
5. To advertise or not to advertise
Suppose that Expresso and Beantown are the only two firms that sell coffee. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises:
| Beantown | |||
| Advertise | Doesnât Advertise | ||
| Expresso | Advertise | 10, 10 | 18, 2 |
| Doesnât Advertise | 2, 18 | 11, 11 | |
For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $18 million, and Beantown will make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizing firms.
If Expresso decides to advertise, it will earn a profit ofmillion if Beantown advertises and a profit ofmillion if Beantown does not advertise.
If Expresso decides not to advertise, it will earn a profit ofmillion if Beantown advertises and a profit ofmillion if Beantown does not advertise.
If Beantown advertises, Expresso makes a higher profit if it chooses .
If Beantown doesn't advertise, Expresso makes a higher profit if it chooses .
Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing?
Expresso will choose to advertise and Beantown will choose not to advertise.
Both firms will choose not to advertise.
Both firms will choose to advertise.
Expresso will choose not to advertise and Beantown will choose to advertise.
Again, suppose that both firms start off not advertising. If the firms decide to collude, what strategies will they end up choosing?
Expresso will choose not to advertise and Beantown will choose to advertise.
Both firms will choose to advertise.
Both firms will choose not to advertise.
Expresso will choose to advertise and Beantown will choose not to advertise.
