Dell and Sony compete primarily by price. Each firm must choose either a high price or a low price simultaneously. Use the following information to create the profit matrix:

1. If Dell and Sony both set high prices, Dell’s profit is $40 million and Sony’s profit is $35 million.
2. If Dell sets high price and Sony sets low price, Dell’s profit is $25 million and Sony’s profit is $40 million.
3. If Dell sets low price and Sony sets high price, Dell’s profit is $50 million and Sony’s profit is $10 million.
4. If Dell and Sony set low prices, Dell has $20 million and Sony has $15 million.

Please answer the following questions:

1. Does Sony have a dominant strategy? Dell? If so, which one?
2. If Dell and Sony maximize their profits non-cooperatively, what is the Nash-equilibrium for this profit matrix?
3. Instead, if Dell and Sony maximize their joint profits cooperatively, what is the equilibrium? Assume they keep their agreements.

Answer rating: 100% (QA)

Profit Matrix for Dell and Sony Pricing Decision Dells Price Sonys Price High Price High Price Dell ... View the full answer