The following payoff matrix shows the profits accruing to two firms,Company C and Company D,under different pricing strategies.In each cell,the figure on the left indicates Company C's payoff and the figure on the right indicates Company D's payoff.
Table 15-1
-Refer to Table 15-1.If X = 135 and Y = 75,the method of iterated dominance can be used to conclude that company C's strategy of choosing a _____ price is dominated by a strategy of a _____ price.
A)high;low
B)medium;low
C)low;medium
D)high;medium

Question

The following payoff matrix shows the profits accruing to two firms,Company C and Company D,under different pricing strategies.In each cell,the figure on the left indicates Company C's payoff and the figure on the right indicates Company D's payoff.
Table 15-1 
-Refer to Table 15-1.If X = 135 and Y = 75,the method of iterated dominance can be used to conclude that company C's strategy of choosing a _____ price is dominated by a strategy of a _____ price.
A)high;low 
B)medium;low 
C)low;medium 
D)high;medium

Quizplus · Accepted Answer

Using the method of iterated dominance, we first consider the bottom right cell (200,200). Since both firms can increase their payoffs by decreasing their price while keeping the other firm's price constant, we can eliminate this cell. Next, we consider the top right cell (120, 250). Company D can increase their payoff by decreasing their price while keeping Company C's price constant, so we can eliminate this cell. This leaves us with two cells: (135, 200) and (95, 210). Now, we can consider the row player, Company C. In the first cell, they can increase their payoff by decreasing their price from 135 to 95, while keeping Company D's price constant at 200. In the second cell, Company C's payoff is already at a minimum, so they have no incentive to choose that strategy. Therefore, we can eliminate the first cell, leaving us with the final solution: Company C should choose a low price strategy, while Company D should choose a medium price strategy.

The Following Payoff Matrix Shows the Profits Accruing to Two