The following depicts a normal-form game of price competition. $\begin{array}{l}
\quad\quad\quad\quad\quad\quad\text { Firm B}\
\text { Firm A}
\begin{array}{|l|l|l|}
\hline &\text { Low Price } & \text { High Price }\
\hline & & \
\text { Low Price } & 0,0 & 25,-5 \
\hline & & \
\text { High Price } & -5,25 & 10,10 \
\hline
\end{array}\end{array}$ Suppose that firm A deviates from a trigger strategy to support a high price.What is the present value of A's payoff from cheating?
A) 5
B) 20
C) 25
D) 35

Question

The following depicts a normal-form game of price competition. $\begin{array}{l}
\quad\quad\quad\quad\quad\quad\text { Firm B}\
\text { Firm A}
\begin{array}{|l|l|l|} 
\hline &\text { Low Price } & \text { High Price }\
\hline & & \
\text { Low Price } & 0,0 & 25,-5 \
\hline & & \
\text { High Price } & -5,25 & 10,10 \
\hline
\end{array}\end{array}$ Suppose that firm A deviates from a trigger strategy to support a high price.What is the present value of A's payoff from cheating?
A) 5
B) 20
C) 25
D) 35

Quizplus · Accepted Answer

The present value of A's payoff from cheating, when deviating from a trigger strategy to support a high price, is 25. This is because, by setting a low price while Firm B sets a high price, Firm A gets a payoff of 25, as shown in the payoff matrix.

The Following Depicts a Normal-Form Game of Price Competition Suppose That Firm a Deviates from a Trigger Strategy to