Scenario 13.16
Consider the pricing game below:
-Refer to Scenario 13.16. If Gooi moves first, the payoff in equilibrium will be:
A) $150, $0.
B) $150, $300.
C) $400, $150.
D) $50, $50.
E) $650, $450.

Question

Scenario 13.16
Consider the pricing game below: 
-Refer to Scenario 13.16. If Gooi moves first, the payoff in equilibrium will be:
A) $150, $0. 
B) $150, $300. 
C) $400, $150. 
D) $50, $50. 
E) $650, $450.

Quizplus · Accepted Answer

In this pricing game, Gooi has the opportunity to choose a high or low price, and Tan has the opportunity to match or undercut that price. 
If Gooi chooses a high price, say $300, Tan will have the incentive to undercut that price by choosing $150, since this will result in higher profits for Tan ($250) than matching the high price ($0). 
If Gooi instead chooses a low price, say $150, Tan will have the incentive to match that price, since undercutting would result in lower profits for Tan ($100). 
Therefore, the only equilibrium in this game is for Gooi to choose a high price and for Tan to choose to undercut that price, resulting in payoffs of $400 for Tan and $150 for Gooi.

Scenario 13.16 Consider the Pricing Game Below