Camp with Us and Happy Campers compete in the market for campers. Each firm must decide each season if they are going to offer special financing or not. The above payoff matrix shows each firm's net economic profit at each pair of strategies.
-Refer to the payoff matrix above. If Camp with Us is known for consistently offering special financing and this is the focal point, what is the equilibrium of the game using the focal point criterion?
A)Camp with Us Offer Financing and Happy Campers Offer Financing
B)Camp with Us Do Not Offer Financing and Happy Campers Do Not Offer Financing
C)Camp with Us Offer Financing and Happy Campers Do Not Offer Financing
D)Camp with Us Do Not Offer Financing and Happy Campers Offer Financing

Question

Camp with Us and Happy Campers compete in the market for campers. Each firm must decide each season if they are going to offer special financing or not. The above payoff matrix shows each firm's net economic profit at each pair of strategies.
-Refer to the payoff matrix above. If Camp with Us is known for consistently offering special financing and this is the focal point, what is the equilibrium of the game using the focal point criterion?
A)Camp with Us Offer Financing and Happy Campers Offer Financing 
B)Camp with Us Do Not Offer Financing and Happy Campers Do Not Offer Financing 
C)Camp with Us Offer Financing and Happy Campers Do Not Offer Financing 
D)Camp with Us Do Not Offer Financing and Happy Campers Offer Financing

Quizplus · Accepted Answer

The focal point of the game is Camp with Us consistently offering special financing. Therefore, the most likely equilibrium is for Camp with Us to offer financing, as it is consistent with their reputation, and for Happy Campers to not offer financing, as it ensures that they will not lose money in a price war with Camp with Us. This leads to both firms receiving a net economic profit of 50, which is the highest possible outcome in the game.

Camp with Us and Happy Campers Compete in the Market