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 9 to each firm. If both firms choose High, each firm gets 7. If one firm chooses Low and the other High, the Low-priced firm gets 1 and the firm that opted for High gets 10. Which statement is true? the outcome of the game is (High, High); this game is not a prisoners’ dilemma Correct! the outcome of the game is (High, High); this game is a prisoners’ dilemma the outcome of the game is (Low, Low); this game is not a prisoners’ dilemma the outcome of the game is (Low, Low); this game is a prisoners’ dilemma none of the above
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 9 to each firm. If both firms choose High, each firm gets 7. If one firm chooses Low and the other High, the Low-priced firm gets 1 and the firm that opted for High gets 10. Which statement is true? the outcome of the game is (High, High); this game is not a prisoners’ dilemma Correct! the outcome of the game is (High, High); this game is a prisoners’ dilemma the outcome of the game is (Low, Low); this game is not a prisoners’ dilemma the outcome of the game is (Low, Low); this game is a prisoners’ dilemma none of the above
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 in this game:
- If both firms choose Low, they each get 9.
- If both firms choose High, they each get 7.
- If one firm chooses Low and the other High, the Low-priced firm gets 1 and the High-priced firm gets 10.
In this game, each firm has a dominant strategy, which is the best strategy regardless of what the other firm does. The dominant strategy for each firm is to choose High, because the worst outcome from choosing High (7) is better than the worst outcome from choosing Low (1).
However, if both firms choose High, they each get 7, which is less than what they would get if they both chose Low (9). This is the dilemma - each firm has an incentive to choose High, but if they both do so, they are worse off than if they had both chosen Low.
Therefore, the correct statement is: "the outcome of the game is (High, High); 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?Correct! the outcome of the game is (Low, High), where Coles if playing the first strategy Low and Woolworths High; this game is a prisoners’ dilemma the outcome of the game is (High, Low); this game is a prisoners’ dilemma the outcome of the game is (Low, Low); this game is not a prisoners’ dilemma the outcome of the game is (High, High); this game is a prisoners’ dilemma
In economics, a game is always a prisoners’ dilemma.Group of answer choicesTrueFalse
Choose ALL correct answers:A prisoners' dilemma is a game in which:Group of answer choicesplayers cooperate in arriving at their strategies.all players have a dominant strategy.all players could be better off if neither chose their dominant strategy.both players choose their dominant strategies in the Nash equilibrium.None of the other answers are correct
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
A firm that finds itself in a prisoners’ dilemma would get a higher payoff if it changed it’s strategy (assuming the other firm did not).Group of answer choicesFalseTrue
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