Intel is ready to introduce its new microprocessor.In chip manufacturing,as more chips are produced,production yields rise.Thus,Intel can choose between a below-cost pricing strategy (upper branch)to reach the higher-yield zone more quickly,or an above-cost pricing strategy (lower branch)and move to the higher-yield zone more slowly.AMD will introduce its new microprocessor two months after Intel,and faces the same below-cost (upper branch)and above-cost (lower branch)strategies.Writing out the outcomes on the decision tree might prove helpful as you answer the following questions.
-Refer to the decision tree above.AMD and Intel find that
A) below-cost pricing is the best possible solution.
B) to price above cost when the other is pricing below cost is the best solution.
C) while above-cost pricing is the best solution for both,below-cost pricing will be the outcome.
D) their pricing decisions have no impact on each other.
E) the incentives in this game cause them to choose the best solution.

Question

Intel is ready to introduce its new microprocessor.In chip manufacturing,as more chips are produced,production yields rise.Thus,Intel can choose between a below-cost pricing strategy (upper branch)to reach the higher-yield zone more quickly,or an above-cost pricing strategy (lower branch)and move to the higher-yield zone more slowly.AMD will introduce its new microprocessor two months after Intel,and faces the same below-cost (upper branch)and above-cost (lower branch)strategies.Writing out the outcomes on the decision tree might prove helpful as you answer the following questions.
-Refer to the decision tree above.AMD and Intel find that
A) below-cost pricing is the best possible solution. 
B) to price above cost when the other is pricing below cost is the best solution. 
C) while above-cost pricing is the best solution for both,below-cost pricing will be the outcome. 
D) their pricing decisions have no impact on each other. 
E) the incentives in this game cause them to choose the best solution.

Quizplus · Accepted Answer

Both Intel and AMD have the highest payoff in the upper right quadrant, which represents the higher-yield zone. However, they both also have the incentive to reach that zone as quickly as possible. Therefore, they will both choose the below-cost pricing strategy (upper branch) to reach the higher-yield zone more quickly, even though above-cost pricing would be the best solution for both in the long run. This results in below-cost pricing being the outcome.

Intel Is Ready to Introduce Its New Microprocessor