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Question
Table 14-2
Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000.
Refer to Table 14-2. Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?
A) No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000.
B) No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game.
C) No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price.
D) Yes, the current situation is a Nash equilibrium.
Answer
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A) a only
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