Question
Using a payoff matrix to determine the equilibrium outcome Suppose that Zipride and Citron are the only two firms in a hypothetical market that produce
Using a payoff matrix to determine the equilibrium outcome
Suppose that Zipride and Citron are the only two firms in a hypothetical market that produce and sell electric scooters. 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 scooters.
Citron Pricing | |||
High | Low | ||
Zipride Pricing | High | 11,11 | 3,15 |
Low | 15,3 | 9,9 |
For example, the lower-left cell shows that if Zipride prices low and Citron prices high, Zipride will earn a profit of $15 million, and Citron will earn a profit of $3 million. Assume this is a simultaneous game and that Zipride and Citron are both profit-maximizing firms.
If Zipride prices high, Citron will make more profit if it chooses a price, and if Zipride prices low, Citron will make more profit if it chooses a price.
If Citron prices high, Zipride will make more profit if it chooses a price, and if Citron prices low, Zipride will make more profit if it chooses a price.
Considering all of the information given, pricing high a dominant strategy for both Zipride and Citron.
If the firms do not collude, what strategies will they end up choosing?
Both Zipride and Citron will choose a low price.
Zipride will choose a high price, and Citron will choose a low price.
Zipride will choose a low price, and Citron will choose a high price.
Both Zipride and Citron will choose a high price.
True or False: The game between Zipride and Citron is notan example of the prisoners' dilemma.
True
False
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