Chapter $18$ Homework

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

Suppose that Zipride and Citron are the only two firms in a hypothetical market that produce and sell electric scooters. 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 scooters.

$\backslash$table$[[$Zipride Pricing,,Citron.Pricing$],[,$High,Low$],[$High$,9,9,2,15],[$Low$,15,2,8,8]]$

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

If Zipride prices high, Citron will make more profit if it chooses a $q,$ price, and if Zipride prices low, Citron will make more profit if it chooses a price.

If Citron prices high, Zipride will make more profit if it chooses a $q,$ price, and if Citron prices low, Zipride will make more profit if it chooses a $$ price.

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

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

Zipride will choose a low price, and Citron will choose a high price.

Both Zipride and Citron will choose a high price.

Both Zipride and Citron will choose a low price.

Zipride will choose a high price, and Citron will choose a low price.

True or False: The game between Zipride and Citron is an example of the prisoners' dilemma.