Question

Refer to the following normal form game of price competition for questions 85 - 88.

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		Firm B
		Low Price	High Price
Firm A	Low Price	0, 0	50, -10
	High Price	-10, 50	25, 25

​

​

​What is the payoff for each firm in this simultaneous game?

	a.	​Both firms will earn 25
	b.	​Both firms will earn 0
	c.	​Firm A will earn 50 and firm B will earn -10
	d.	​Firm A will earn -10 and firm B will earn 50

Answer 1

For A

If B chooses low price, A will choose low as it'll give high payoff of 0

If B choose high price, A will choose low as it'll give a high pay off of 50

For B

If A chooses low price, B will choose low as it'll give high payoff of 0

If A choose high price, B will choose low as il give a high pay off of 50

Because the common point is when both choose low which is the Nash equilibrium here.

That is why

(b) is the answer to this question

Because both earn 0

(a,c,d) are wrong