Consider a pricing game between Coles and Woolworths. Each firm simultaneously chooses whether to price High or Low. If both firms price Low, the payoffs are 8 to each firm. If both firms choose High, each firm gets 12. If one firm chooses Low and the other High, the Low-priced firm gets 14 and the firm that opted for High gets 2. Which statement is true?Group of answer choicesthe outcome of the game is (High, High); this game is not a prisoners’ dilemmathe outcome of the game is (High, High); this game is a prisoners’ dilemmathe outcome of the game is (Low, Low); this game is not a prisoners’ dilemmathe outcome of the game is (Low, Low); this game is a prisoners’ dilemmanone of the above Flag question: Question 7
Question
Consider a pricing game between Coles and Woolworths. Each firm simultaneously chooses whether to price High or Low. If both firms price Low, the payoffs are 8 to each firm. If both firms choose High, each firm gets 12. If one firm chooses Low and the other High, the Low-priced firm gets 14 and the firm that opted for High gets 2. Which statement is true?Group of answer choicesthe outcome of the game is (High, High); this game is not a prisoners’ dilemmathe outcome of the game is (High, High); this game is a prisoners’ dilemmathe outcome of the game is (Low, Low); this game is not a prisoners’ dilemmathe outcome of the game is (Low, Low); this game is a prisoners’ dilemmanone of the above Flag question: Question 7
Solution
To answer this question, we need to understand the concept of a Prisoner's Dilemma in game theory. A Prisoner's Dilemma is a situation where individual decision makers always have an incentive to choose in a way that creates a less than optimal outcome for the individuals as a group.
Let's analyze the payoffs:
- If both firms choose Low, they each get 8.
- If both firms choose High, they each get 12.
- If one firm chooses Low and the other High, the Low-priced firm gets 14 and the High-priced firm gets 2.
Each firm would prefer to price Low if the other firm prices High (to get 14 instead of 2), and each firm would prefer to price High if the other firm prices Low (to get 12 instead of 8). This means each firm has an incentive to deviate from a (High, High) or (Low, Low) outcome, making those outcomes unstable.
However, if both firms choose Low, neither firm has an incentive to deviate because they would only get 2 if they chose High while the other firm chose Low. Therefore, the outcome of the game is (Low, Low).
This game is a Prisoner's Dilemma because each firm has an incentive to choose a price that leads to a less than optimal outcome for the firms as a group. If they could cooperate and both choose High, they would each get 12, which is better than the 8 they each get when they both choose Low.
So, the correct answer is: "the outcome of the game is (Low, Low); this game is a prisoners’ dilemma".
Similar Questions
Consider a pricing game between Coles and Woolworths. Each firm simultaneously chooses whether to price High or Low. If both firms price Low, the payoffs are 8 to Coles and 2 to Woolworths. If both firms choose High, the payoffs are 3 to Coles and 7 to Woolworths. If Coles opts for Low and Woolworths High, Coles gets 5 and Woolworths 4. Finally, if Coles plays High and Woolworths Low, Coles gets 7 and Woolworths receives a payoff of 6. Which statement is true?Group of answer choicesthe outcome of the game is (Low, High), where Coles if playing the first strategy Low and Woolworths High; this game is a prisoners’ dilemmathe outcome of the game is (High, Low); this game is a prisoners’ dilemmathe outcome of the game is (Low, Low); this game is not a prisoners’ dilemmathe outcome of the game is (High, High); this game is a prisoners’ dilemmathe outcome of the game is (High, High); this game is not a prisoners’ dilemma
Consider a pricing game between Coles and Woolworths. Each firm simultaneously chooses whether to price High or Low. If both firms price Low, the payoffs are 8 to each firm. If both firms choose High, each firm gets 12. If one firm chooses Low and the other High, the Low-priced firm gets 14 and the firm that opted for High gets 2.In this game:Group of answer choicesColes has a dominant strategy to choose HighColes has a dominant strategy to choose LowColes does not have a dominant strategyColes does have a dominant strategy, but it depends on what Woolworth chooses to do.None of the above
In economics, a game is always a prisoners’ dilemma.Group of answer choicesTrueFalse
In a prisoners’ dilemmaGroup of answer choiceseach player has a dominant strategyonly one player has a dominant strategythere are always two playerssetting a low price is always the best strategynone of the above
Consider two competitors in the hardware industry, Handy Hardware and Tradie Heaven. Both firms can simultaneously choose to Discount or Not (discount). If both firms Discount the payoffs are 15 to each firm. If both firms choose Not to discount, the payoffs are 25 to each firm. If Handy Hardware chooses Discount and Tradie Heaven chooses Not, Handy gets 20 and Tradie gets 10. If Handy Hardware chooses Not to discount and Tradie Heaven chooses Discount, Handy gets 10 and Tradie gets 20. What is the outcome of this game? Group of answer choices One firm chooses Not and the other Discount. Both firms choose Discount, and this is a prisoners’ dilemma. There is no dominant strategy equilibrium None of the other answers are correct. Both firms choose Discount but this is not a prisoners’ dilemma.
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