The following payoff matrix shows the profits accruing to two firms,Company A and Company B,under different pricing strategies.In each cell,the figure on the left indicates Company A's payoff and the figure on the right indicates Company B's payoff.
Table 15-2
-Refer to Table 15-2.Suppose that company A makes a credible commitment not to be undersold by company B.Then it is most likely that the companies A and B will:
A)both choose the high-price strategy.
B)both choose the medium-price strategy.
C)both choose the low-price strategy.
D)choose the low price strategy and high price strategy respectively.

Question

The following payoff matrix shows the profits accruing to two firms,Company A and Company B,under different pricing strategies.In each cell,the figure on the left indicates Company A's payoff and the figure on the right indicates Company B's payoff.
Table 15-2 
-Refer to Table 15-2.Suppose that company A makes a credible commitment not to be undersold by company B.Then it is most likely that the companies A and B will:
A)both choose the high-price strategy. 
B)both choose the medium-price strategy. 
C)both choose the low-price strategy. 
D)choose the low price strategy and high price strategy respectively.

Quizplus · Accepted Answer

If company A commits not to be undersold, it signals that it will match any lower price set by company B. This reduces the incentive for company B to lower prices, leading both companies to choose the high-price strategy to maximize profits.

The Following Payoff Matrix Shows the Profits Accruing to Two