2 Suppose there are two firms, called A and B, which compete with each other in the market for a unique product. Each firm can charge one of two prices for this product: a high price or a low price . If both firms charge the high price, , they split total market profits of 1000. If they both charge the low price , total market profits fall to 400. If firm A charges the high price but firm B undercuts its rival by charging the low price , total market profits fall to 750, but more people buy from firm B because it has a lower price, so it gains 80 percent of total market profits. The outcome where firm A undercuts firm B is symmetric, with firm A gaining 80 percent of market profits.