GoJex and Grav are both considering whether to charge a low price or a high price to their

customers. If both firms charge a low price, each firm will make a profit of $5 million. If GoJex

charges a low price while Grav charges a high price, GoJex will make a profit of $25 million

and Grav will only make a profit of $2 million. On the other hand, if GoJex do not charges a

low price while Grav does, GoJex will make a profit of $2 million while Grav will make a

profit of $25 million. Finally, if both firms charge a high price, each firm will make a profit of

$15 million.

a. Use the information above to construct a payoff matrix for GoJex and Grav.

b. What is the dominant strategy for each firm? Explain.

c. Based on your answer (point b) above, what is the Nash equilibrium for this game?

Explain.

d. What is the cooperative (collusion) outcome? Explain.