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Two firms choose the prices of their products on the first day of the month. The...

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Economics

Two firms choose the prices of their products on the first dayof the month. The following payoff table shows their monthlypayoffs resulting from the pricing decisions they can make

Firm B
Low PriceHigh Price
Firm ALow Price$400, $600$100, $700
High Price$600, $300$150, $400
  1. Is the Pricing decision facing the 2 firms a prisoner’s dilemmasituation? Why or why not?
  2. What is the outcome of the game if the firms do not cooperatein making the decision to choose their prices? Why?
  3. What is the outcome of the game if the firms do cooperate inmaking the decision to choose their prices? Why?

Answer & Explanation Solved by verified expert
4.1 Ratings (624 Votes)
Q1 Yes The pricing decision is a Prisonersdilemma situation Here each firm has a strictly dominant strategy to charge high price That is no matter what the other firm does each firm gets a higher Payoff by pricing high rather than    See Answer
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