Chapter $18$ Homework

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Blend Magic Pricing

$\backslash$table$[[,,$High,Low$],[$Vitablend Pricing,High,$12,12,5,22],[,$Low,$22,5,11,11],[,,,]]$

For example, the lower$-$left cell shows that if Vitablend prices low and Blend Magic prices high, Vitablend will earn a profit of $$22$ million, and Blend Magic will earn a profit of $$5$ million. Assume this is a simultaneous game and that Vitablend and Blend Magic are both profit$-$maximizing firms.

If Vitablend prices high, Blend Magic will make more profit if it chooses a $q,$ price, and if Vitablend prices low, Blend Magic will make more profit if it chooses a price.

If Blend Magic prices high, Vitablend will make more profit if it chooses a $q,$ price, and if Blend Magic prices low, Vitablend will make more profit if it chooses a $q,$ price.

Considering all of the information given, pricing low $$ a dominant strategy for both Vitab$$nd and Blend Magic.

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

$$ Both Vitablend and Blend Magic will choose a low price.

Vitablend will choose a low price, and Blend Magic will choose a high price.