9. Using a payoff matrix to determine the equilibrium outcomeSuppose there are only two firms that sell digital cameras, Picturesque and Capturemania. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its cameras.Capturemania PricingHighLowPicturesque PricingHigh10, 104, 19Low19, 46, 6For example, the lower, left cell shows that if Picturesque prices low and Capturemania prices high, Picturesque will earn a profit of $19 million and Capturemania will earn a profit of $4 million. Assume this is a simultaneous game and that Picturesque and Capturemania are both profit-maximizing firms.
Payoff matrix (Picturesque payoff, Capturemania payoff) in millions
Capturemania: High
Capturemania: Low
Picturesque: High
10, 10
4, 19
Picturesque: Low
19, 4
6, 6
If Picturesque prices high, Capturemania will make more profit if it chooses a price, and if Picturesque prices low, Capturemania will make more profit if it chooses a price.
If Capturemania prices high, Picturesque will make more profit if it chooses a price, and if Capturemania prices low, Picturesque will make more profit if it chooses a price.
Considering all of the information given, pricing high a dominant strategy for both Picturesque and Capturemania.
If the firms do not collude, which strategy will they end up choosing?
Both Picturesque and Capturemania will choose a low price.
Picturesque will choose a low price and Capturemania will choose a high price.
Picturesque will choose a high price and Capturemania will choose a low price.
Both Picturesque and Capturemania will choose a high price.
True or False: The game between Picturesque and Capturemania is an example of the prisoner’s dilemma.
True
False
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