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

Suppose that Snapface and Instashot are the only two firms in a hypothetical market that produce and sell polaroid cameras. 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 cameras.

Instashot PricingHighLowSnapface PricingHigh$11,112,15$Low$15,28,8$

For example, the lower$-$left cell shows that if Snapface prices low and Instashot prices high, Snapface will earn a profit of $$15$ million, and Instashot will earn a profit of $$2$ million. Assume this is a simultaneous game and that Snapface and Instashot are both profit$-$maximizing firms.

If Snapface prices high, Instashot will make more profit if it chooses a$$price$,$ and if Snapface prices low, Instashot will make more profit if it chooses a$$price$.$

If Instashot prices high, Snapface will make more profit if it chooses a$$price$,$ and if Instashot prices low, Snapface will make more profit if it chooses a$$price$.$

Considering all of the information given, pricing low$$a dominant strategy for both Snapface and Instashot.

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

Both Snapface and Instashot will choose a high price.

Snapface will choose a low price, and Instashot will choose a high price.

Both Snapface and Instashot will choose a low price.

Snapface will choose a high price, and Instashot will choose a low price.

True or False: The game between Snapface and Instashot is an example of the prisoners$$ dilemma.

True

False