Question

Suppose there are only two firms that sell Blu-ray players, Movietonia and Videotech. 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 players. For example the lower left cell shows that if Movietonia prices low and Videotech prices high, Movietonia earn a profit of $19 million and Videotech will earn a profit of $4 million. Assume this is a simultaneous game and that Movietonia and Videotech are both-profit-maximizing firms.
Videotech
Movietonia high price low price
high price 10, 10 4, 19
low price 19, 4 6, 6

If Movietonia prices high, Videotech makes more profit if it chooses a _____, and if Movietonia prices low, Videotech makes more profit if it chooses a _____.
If Videotech prices high, Movietonia makes more profit if it chooses a _____, and if Videotech prices low, Movietonia makes more profit if it chooses a _____.
Considering all of the information given, pricing high _____ a dominant strategy for both Movietonia and Videotech.

If the firms do not collude, what strategies will they end up choosing?

a. Movietonia will choose a high price and Videotech will choose a low price.
b. Movietonia will choose a low price and Videotech will choose a high price.
c. Both Movietonia and Videotech will choose a high price
d. Both Movietonia and Videotech will choose a low price

The game between Movietonia and Videotech is an example of the prisoner's dilemma.
i. True
ii. False

Answer 1

Answer:

From the given Matrix we can see that if videotech is selecting a high price, movietonia has a higher profit when it is charging a low price and this profit is 18. Similarly when videotech is selecting a lower price movietonia again has a higher profit when it is selecting a lower price which is 10. This indicates that movie tonia has a dominant strategy of selecting a low price.

If movietonia is selecting a high price videotech has a a higher pay off of 18 when it is selecting a low price. In case movietonia is selecting a low price videotech again has a higher profit when it is selecting a low price and this profi is 10.

Therefore videotech and movietonia both have dominant strategy of selecting a low price and this implies that low price, low price will be the Nash equilibrium.

In case the two firms are not colluding, both of them will choose a low price.

This is definitely an example of business dilemma game. The statement is true.

Explanation: