Table 12.2

Table 12.2 shows the payoff matrix for London Drugs and FutureShop 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 12.2.For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?

Question

Table 12.2
  
Table 12.2 shows the payoff matrix for London Drugs and FutureShop 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 12.2.For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?

Quizplus · Accepted Answer

According to the payoff matrix, if both firms agree to charge a higher price, such as $800, they can earn a higher profit of $9,000 each. This outcome is better than the current situation where each firm earns $7,000 with a low price. However, this strategy would be considered collusion and would be illegal under antitrust law.

Table 12.2 Table 12.2 Shows the Payoff Matrix for London Drugs and Matrix