Using a payoff matrix to determine the equilibrium outcome

Suppose there are only two firms that sell smartphones, Flashfone and Pictech. The payoff matrix that follows shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its phones. For example, the lower-left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $6 million and Pictech will earn a profit of $1 million.

Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms.

PictechHigh PriceLow PriceFlashfoneHigh Price4,41,6Low Price6,12,2

If Flashfone prices high, Pictech will make more profit if it chooses a price, and if Flashfone prices low, Pictech will make more profit if it chooses a price.

If Pictech prices high, Flashfone will make more profit if it chooses a price, and if Pictech prices low, Flashfone will make more profit if it chooses a price.

Considering all of the information given, pricing high a dominant strategy for both Flashfone and Pictech.

If the firms do not collude, what strategies will they end up choosing?

Flashfone will choose a high price and Pictech will choose a low price.

Both Flashfone and Pictech will choose a low price.

Flashfone will choose a low price and Pictech will choose a high price.

Both Flashfone and Pictech will choose a high price.

True or False: The game between Flashfone and Pictech isnotan example of the prisoners' dilemma.

True

False