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.

	Citron Pricing
High	Low
Zipride Pricing	High	11,11	3,15
Low	15,3	9,9

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 $3 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 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 price, and if Citron prices low, Zipride will make more profit if it chooses a price.

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

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

Both Zipride and Citron will choose a low price.

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

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

Both Zipride and Citron will choose a high price.

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

True

False