## Question

# Suppose Coca-Cola and Pepsi-Cola, who do not communicate, are engaged in a sales game and each firm seeks to maximize profit. The firms set high

Suppose Coca-Cola and Pepsi-Cola, who do not communicate, are engaged in a sales game and each firm seeks to maximize profit. The firms set high price or low price. If both set high price, each makes $50 profit. If one sets a low price and the other a high price, the high-price firm makes $200 profit and the low-price firm makes $0. If both set low price, then each makes $75 profit.

What would be the equilibrium outcome of this game? Would the equilibrium outcome be better off or worse off to both Coca-Cola and Pepsi-Cola? **Explain ****why**. Illustrate your answer with the payoff matrix for both firms. (5 marks)

**INSTRUCTIONS**

1.Type your answer to each part of the question. **CLEARLY LABEL EACH PART**

2.Draw your diagram by hand on a piece of paper, take photo of the diagram and upload as an attachment. (**Make sure you referred to the diagram in your typed explanation.)**

## Step by Step Solution

There are 3 Steps involved in it

### Step: 1

Answer Part 1 Payoff Matrix First lets construct the payoff matrix for the game The payoff matrix will help us visualize the possible outcomes based o...### Get Instant Access to Expert-Tailored Solutions

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### Step: 2

### Step: 3

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