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2. Using a payoff matrix to determine the equilibrium outcome Suppose that Snapface and Instashot are the only two firms in a hypothetical market that
2. Using a payoff matrix to determine the equilibrium outcome Suppose that Snapface and Instashot are the only two firms in a hypothetical market that produce and sell polaroid cameras. The following payoff matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for cameras. Instashot Pricing High LOW High 9. 1 2, 15 Snapface Pricing Low 15, 2 8, 8 For example, the lower-left cell shows that if Snapface prices low and Instashot prices high, Snapface will earn a profit of $15 million, and Instashot will earn a profit of $2 million. Assume this is a simultaneous game and that Snapface and Instashot are both profit-maximizing firms. If Snapface prices high, Instashot will make more profit if it chooses a _ price, and if Snapface prices low, Instashot will make more profit if it chooses a * price. If Instashot prices high, Snapface will make more profit if it chooses a _ price, and if Instashot prices low, Snapface will make more profit if it chooses a ~ price. Considering all of the information given, pricing low a dominant strategy for both Snapface and Instashot. If the firms do not collude, what strategies will they end up choosing? Both Snapface and Instashot will choose a low price. Snapface will choose a low price, and Instashot will choose a high price. Snapface will choose a high price, and Instashot will choose a low price. O Both Snapface and Instashot will choose a high price. True or False: The game between Snapface and Instashot is an example of the prisoners' dilemma. O True O False
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