Westinghouse and General Electric are competing on the newest version of clothes washer and dryer combinations. Two
Question:
Westinghouse and General Electric are competing on the newest version of clothes washer and dryer combinations. Two pricing strategies exist: price high or price low. The profit from each of the four possible combinations of decisions is given in the following payoff matrix:
Westinghouse's price
High ($4000)
Low ($2000)
General Electric's
price
High ($4000)
W: $10,000,000
GE: $10,000,000
W: $16,000,000
GE: $-4,000,000
Low($2000)
GE: $16,000,000
W: $-4,000,000
W: $4,000,000
GE: $4,000,000
Payoffs in dollars of profit.
a) (2 pts.) Which strategy offers both Westinghouse and General Electric the best financial outcome?
b) (2 pts.) Does either firm have a dominant strategy? If yes, which firm and what strategy?
c) (4 pts.) The Nash equilibrium is for Westinghouse to set its price at __________ and earn a profit of __________ and for General Electric to set its price at ______________ and earn a profit of _____________.
d) (2 pts.) Why do we see that the strategy that results is not the strategy that offers both players the best financial outcome?