Two firms are selling the same product. Each has a choice of setting a high price or a low price. If they both set high prices, they make $150 each. If they both set low prices, they each make $125. If one sets a low price and the other sets a high price, then the player with the low price makes $200, while the player with the high price makes $100. The Nash equilibrium of this game is:
A)one to set high price and the other to set low price.
B)there does not exist a Pure Strategy Nash Equilibrium for this game
C)both choosing high price.
D)both choosing low price.

Question

Quizplus · Accepted Answer

In this game, both firms choosing a low price is the Nash equilibrium because neither firm can increase its payoff by unilaterally changing its strategy from low to high price.

Two Firms Are Selling the Same Product