(Figure: Payoff Matrix for Blue Bottle and Opal Ocean) Use Figure: Payoff Matrix for Blue Bottle and Opal Ocean. The figure shows the potential profits of two producers of bottled water. Each has two strategies available to it: a high price and a low price. If both firms follow a Grim trigger strategy, then:

A)both firms will charge a high price.
B)both firms will charge a low price.
C)Blue Bottle will charge a high price, and Opal Ocean will charge a low price.
D)Opal Ocean will charge a high price, and Blue Bottle will charge a low price.

Question

(Figure: Payoff Matrix for Blue Bottle and Opal Ocean) Use Figure: Payoff Matrix for Blue Bottle and Opal Ocean. The figure shows the potential profits of two producers of bottled water. Each has two strategies available to it: a high price and a low price. If both firms follow a Grim trigger strategy, then:
​
 
A)both firms will charge a high price. 
B)both firms will charge a low price. 
C)Blue Bottle will charge a high price, and Opal Ocean will charge a low price. 
D)Opal Ocean will charge a high price, and Blue Bottle will charge a low price.

Quizplus · Accepted Answer

Both firms following a Grim trigger strategy will lead to a Nash equilibrium where both firms will charge a high price, since if one firm deviates and charges a low price, the other firm will retaliate by also charging a low price, resulting in lower profits for both firms.