AT&T and Verizon have two pricing strategies: Set a high (monopoly) price or set a low (competitive) price. Suppose that if they both set a competitive price, economic profit for both is zero. If they both set a monopoly price, AT&T makes an economic profit of $100 million and Verizon makes an economic profit of $200 million. If AT&T sets a low price and Verizon sets a high price, AT&T makes an economic profit of $200 million and Verizon incurs an economic loss of $100 million; if AT&T sets a high price and Verizon sets a low price, AT&T incurs an economic loss of $50 million and Verizon makes an economic profit of $250 million.

• Create the payoff matrix for this game.

• What is the equilibrium of this game?

• Is the equilibrium efficient?

• Is this game a prisoners’ dilemma?