Dell and HP must both simultaneously prices for their new laptops. They can both either choose to set a Low or High price. The payoffs are as follows. If both firms set a Low price, Dell gets 5 and HP 6. If both firms set a High price, the payoffs are 7 to Dell and 8 to HP. If Dell sets a High price and HP chooses Low, the payoffs are 3 to Dell and 10 to HP. If Dell sets a Low price and HP opts for High, the payoffs are 9 to Dell and 1 to H. Which of the followings is true?Group of answer choicesDell and HP may be able to collude and charge High price in the equilibrium if the game is played five timesDell and HP may be able to collude and charge High price in the equilibrium if the game is played twice.Dell and HP always choose Low price in the equilibrium if this game is played twice.None of the statements are correct.Dell and HP will both charge a high price if the game is played once.
Question
Dell and HP must both simultaneously prices for their new laptops. They can both either choose to set a Low or High price. The payoffs are as follows. If both firms set a Low price, Dell gets 5 and HP 6. If both firms set a High price, the payoffs are 7 to Dell and 8 to HP. If Dell sets a High price and HP chooses Low, the payoffs are 3 to Dell and 10 to HP. If Dell sets a Low price and HP opts for High, the payoffs are 9 to Dell and 1 to H. Which of the followings is true?Group of answer choicesDell and HP may be able to collude and charge High price in the equilibrium if the game is played five timesDell and HP may be able to collude and charge High price in the equilibrium if the game is played twice.Dell and HP always choose Low price in the equilibrium if this game is played twice.None of the statements are correct.Dell and HP will both charge a high price if the game is played once.
Solution
Step 1: Read the question carefully and understand what is being asked.
Step 2: Identify the key terms in the question, such as "Dell," "HP," "prices," "payoffs," and "equilibrium."
Step 3: Determine the Nash equilibrium by finding the best response for each firm given the other's choice.
- If Dell sets a Low price, HP's best response is to set a Low price, since 6 > 5. If HP sets a Low price, Dell's best response is to set a Low price, since 5 > 3. Therefore, Low-Low is the Nash equilibrium.
- If the game is played twice or more, the firms may be able to collude and charge a High price. However, this is not a Nash equilibrium, since both firms have an incentive to cheat and charge a Low price to earn a higher profit.
- Dell and HP will not both charge a High price in the Nash equilibrium, since High-High is not a Nash equilibrium.
Step 4: Based on the above analysis, the correct answer is "None of the statements are correct."
Similar Questions
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