-Refer to Figure 2.7, which summarizes the payoffs in thousands of dollars to two firms in a duopolistic industry arising from alternative pricing strategies. Assume that this is a simultaneous-move, cooperative, one-time game. The Nash equilibrium strategy profile for this game is:
A) {Raise price, Raise price}.
B) {Raise price, Lower price}.
C) {Lower price, Raise price}.
D) {Lower price, Lower price}.
E) This game does not have a unique Nash equilibrium strategy profile.

Question

-Refer to Figure 2.7, which summarizes the payoffs in thousands of dollars to two firms in a duopolistic industry arising from alternative pricing strategies. Assume that this is a simultaneous-move, cooperative, one-time game. The Nash equilibrium strategy profile for this game is:
A) {Raise price, Raise price}. 
B) {Raise price, Lower price}. 
C) {Lower price, Raise price}. 
D) {Lower price, Lower price}. 
E) This game does not have a unique Nash equilibrium strategy profile.

Quizplus · Accepted Answer

In a simultaneous-move game, each firm chooses its strategy without knowing the other's choice. The Nash equilibrium occurs when neither firm can benefit by unilaterally changing its strategy. Typically, in a payoff matrix, the Nash equilibrium is where both firms choose the strategy that results in the highest payoff given the other firm's choice. In this case, {Lower price, Lower price} is likely the Nash equilibrium as it is a common outcome in duopolistic pricing games where both firms lower prices to avoid being undercut by the other.