find (if any) each firms dominant strategy. 2) which strategy does each firm choose in equilibrium when collusion is not allowed? 3) suppose that collusion is allowed between the two firms. could these firms benefit from collusion? why or why not

QUESTION 4: 15 Total Marks Consider two firms in the Australian market. The firms A and B are the only two firms servicing the market. They each have to decide to charge a high price or a low price, The payoff matrix below presents their alternative strategies. Firm B chooses High Price Low Price High Price Firm A earns $1000 Firm A earns $1400 Firm B earns $1000 Firm B earns - $200 Firm A chooses Low Price Firm A earns $300 Firm A earns $400 Firm B earns $1200 Firm B earns $400 04 a) [5 marks] Find (if any) each firm's dominant strategy. b) [5 marks] Which strategy does each firm choose in equilibrium when collusion (joint agreement) is not allowed? ") [5 marks] Suppose that collusion is allowed between the two firms. Could these firms benefit from collusion? Why or why not? B I A - X X Q - E E 6 % H