-Consider the pricing game depicted in Figure 13.7. Payoffs are in millions of dollars. Suppose that firm A believes that regardless of its strategy, there is a 25 percent chance that firm B will charge a high price and an 75 percent chance that firm B will charge a low price. What is the riskier strategy profile for firm A?
A) {High price 6 High price}
B) {High price 6 Low price}
C) {Low price 6 High price}
D) {Low price 6 Low price}

Question

-Consider the pricing game depicted in Figure 13.7. Payoffs are in millions of dollars. Suppose that firm A believes that regardless of its strategy, there is a 25 percent chance that firm B will charge a high price and an 75 percent chance that firm B will charge a low price. What is the riskier strategy profile for firm A?
A) {High price 6 High price} 
B) {High price 6 Low price} 
C) {Low price 6 High price} 
D) {Low price 6 Low price}

Quizplus · Accepted Answer

Given the probabilities, the expected payoff for each strategy can be calculated. The riskier strategy is the one with the higher variance in outcomes, which in this context means the strategy that could potentially lead to a significantly lower payoff compared to the other option. When Firm A charges a high price and Firm B charges a low price, there's a substantial risk involved for Firm A because it could end up with a much lower payoff if Firm B decides to compete aggressively on price.

-Consider the Pricing Game Depicted in Figure 13