Chapter 17 - 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 Pricing High LOW High 11, 11 2. 18 Snapface Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that if Snapface prices low and Instashot prices high, Snapface will earn a profit of $18 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 high a dominant strategy for both Snapface and Instashot. If the firms do not collude, what strategies will they end up choosing? O Both Snapface and Instashot will choose a low price. O Snapface will choose a low price, and Instashot will choose a high price. O Both Snapface and Instashot will choose a high price. O 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. O True False