Oligopolist A is considering a price reduction. The payoff from this strategy depends on the behavior of
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Oligopolist A is considering a price reduction. The payoff from this strategy depends on the behavior of Oligopolist B. If Oligopolist B also reduces price, then Oligopolist A will earn a profit of $50,000. If Oligopolist B does not reduce price, then Oligopolist A will earn a profit of $100,000. The situation is symmetrical; i.e., if Oligopolist B reduces price and Oligopolist A doesn't, then Oligopolist B will earn a profit of $100,000 and, if both oligopolists reduce their prices, then Oligopolist B will earn a profit of $50,000. If neither oligopolist reduces price, then both will continue to earn profits of $75,000. What can Oligopolist A and Oligopolist B be expected to do in the absence of collusion?
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