Question: Advanced Micro Devices (AMD) and Intel are major rivals since 2000s. Interestingly, the products of AMD and Intel are not commodities. In fact, they are

Advanced Micro Devices (AMD) and Intel are major rivals since 2000s. Interestingly, the products of AMD and Intel are not commodities. In fact, they are quite specialized with unique advantages. When AMD introduced its new pathbreaking Athlon processor they were confronted with the choice of lowering their price or hold the price at the current levels because the new processor was indeed very good.

AMD and Intel would have profits of $500m each if they did not engage in a price war. However, if one of them slashed its prices and other one did not, the profits would be $700m for the one who slashed the price and $100m for the one who did not.

If both decided to cut prices then each would have profits of $300m each.

What should AMD do?

What is the dominant strategy?

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