$6.$ Using a payoff matrix to determine the equilibrium outcome

Suppose that Bean Bliss and Brew Buddy are the only two firms in a hypothetical market that produce and sell espresso machines. The following payoff matrix gives profit scenarios for each company $($in millions of dollars$),$ depending on whether it chooses to set a high or low price for machines.

Brew Buddy PricingHighLowBean Bliss PricingHigh$13,137,22$Low$22,79,9$

For example, the lower$-$left cell shows that if Bean Bliss prices low and Brew Buddy prices high, Bean Bliss will earn a profit of $$22$ million, and Brew Buddy will earn a profit of $$7$ million. Assume this is a simultaneous game and that Bean Bliss and Brew Buddy are both profit$-$maximizing firms.

If Bean Bliss prices high, Brew Buddy will make more profit if it chooses a$$price$,$ and if Bean Bliss prices low, Brew Buddy will make more profit if it chooses a$$price$.$

If Brew Buddy prices high, Bean Bliss will make more profit if it chooses a$$price$,$ and if Brew Buddy prices low, Bean Bliss will make more profit if it chooses a$$price$.$

Considering all of the information given, pricing low$$a dominant strategy for both Bean Bliss and Brew Buddy.

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

Both Bean Bliss and Brew Buddy will choose a high price.

Bean Bliss will choose a low price, and Brew Buddy will choose a high price.

Both Bean Bliss and Brew Buddy will choose a low price.

Bean Bliss will choose a high price, and Brew Buddy will choose a low price.

True or False: The game between Bean Bliss and Brew Buddy is not$$an example of the prisoners$$ dilemma.

True

False