The payoff matrix shows all of the following EXCEPT
A)if both oligopolists choose a high price,each makes $6 million.
B)if they both choose a low price,each makes $4 million.
C)if one chooses a low price and the other doesn't,the low priced firm will make $8 million.
D)if one oligopolist chooses a high price and the other doesn't,the high-priced firm makes $8 million.

Question

The payoff matrix shows all of the following EXCEPT 
A)if both oligopolists choose a high price,each makes $6 million. 
B)if they both choose a low price,each makes $4 million. 
C)if one chooses a low price and the other doesn't,the low priced firm will make $8 million. 
D)if one oligopolist chooses a high price and the other doesn't,the high-priced firm makes $8 million.

Quizplus · Accepted Answer

If one oligopolist chooses a high price and the other doesn't, the high-priced firm makes $8 million, which is the highest payoff for a single firm. This is also known as the dominant strategy in game theory. Therefore, both firms will choose a high price, resulting in a Nash equilibrium. Choosing a low price may result in the other firm choosing a high price, leading to a lower payoff, which makes choosing a high price the best strategy.

The Payoff Matrix Shows All of the Following EXCEPT