Game Theory Questions (Check Work)?

Question

General Question: There are only two firms that sell camera phones, Flashtech and Pictone. The payoff matrix below shows the profits (in millions of dollars) each company will earn depending on whether it sets a high or low price for its phones. For example, the lower-left cell shows that if Flashtech prices low and Pictone prices high, Flashtech will earn a profit of $10 million and Pictone will earn a profit of $3 million.

Here’s the Table: http://i37.tinypic.com/f51vkl.jpg

Flashtech and Pictone are both profit-maximizing firms.

#1 - If the firms do not collude, what will they end up choosing?

A. Flashtech will choose a low price and Pictone will choose a high price

B. Flashtech will choose a high price and Pictone will choose a low price

C. Both Flashtech and Pictone will choose a high price

D. Both Flashtech and Pictone will choose a low price

My Answer: D – Both Flashtech & Pictone will choose a low price

Answer 1

Yes, you're right.  But what differentiates it from Prisonner's Dilemma? In both cases they don't collude, in both cases they end up worse off than they would if they colluded, in both cases they arrive at the lower price by avoiding the dominated choices.

Answer 2

i see where u are getting your thinking from and i can see the other side of it too but i think you picked the right anwser

Answer 3

D is the answer. To figure this out you can use the elimination of strictly dominated strategies or Nash Equilibrium.

NASH EQ

If Pictone picks High, then Flash picks between 8 and 10, 10 >8 Flash picks Low, underline the 10

If Pictone Picks Low, then flash picks between 5 and 3, 5>3 so flash picks low also. underline the 5

You do the same for Pictone and get low twice also. Only Low, Low  is Nash EQ.  Since this is the only one were both strategy outcomes were underlined by both players. So this is a Nash EQ

Strictly dominated strategies

Since its alwasy better for pictone to pick low and always better for flashtech to pick low despite the other players strategy you know that low, low is the only strategy not eliminated by the elimination of strictly dominated strategies.