Instructions: You will be reading the case "Pricing Games: Sony PlayStation and Microsoft Xbox" and answering the questions below. I am more interested in your economic reasoning in answering the questions rather than "perfect" answers in an absolute sense, hence that should be the focus of your responses. The case can be purchased for $4.25 at the following website: https://hbsp.harvard.edu/import/743439 .

Submit your answers as a Word document, or PDF (with your last name as your file name) to the "Case Study Analysis" Dropbox in D2L. The assignment is due on December 5, 2020 at 11:00 p.m.

Background: This case provides the necessary price and quantity information to develop and motivate a standard Prisoners' Dilemma pricing game. The setting is the video game industry in 2009.The case begins with a brief history of competition between two giant video games vendors/firms engaging in price competition to maximizes their profits. In particular, the case focuses on price competition and sets up an actual pricing decision made by Sony and Microsoft as they approached the 2009 holiday season. Assume that both firms have to make a strategic decision of charging $399, or $299 as alternative strategies. Game theory is a strategic behavior in which each player/firm chooses its strategy to maximize its profit. The simplest case of game theory is the Prisoners' Dilemma case.

Questions (50 points)

1.Based on the information provided in the case, illustrate the pricing game between Sony and Microsoft using a 2-by-2 payoff matrix when Sony and Microsoft charge for their games $399, or lower price to $299 as their price competition strategy.

Q#1. All you need to do is to sketch an empty pay-off matrixwith 2 firms (Sony and Microsoft) and 2 strategies (charging $399 or reducing price to $299 by either firm) which looks like Table 12.1 on page 389 of the textbook.