(Table) In the payoff matrix, two possible pricing strategies for one twelve-pack of Coke and Pepsi are shown. The profit payoff for each firm is also shown, where the top value in each outcome is the profit for Coke. If the two firms are able to successfully collude _____ per twelve-pack.
$\begin{array}{c}
\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Pepsi's Pricing Strategy per 12-pack} \
\begin{array}{cc}
&&\mathbf{\$ 4} & \mathbf{\$ 5} \
\text { Coke's Pricing Strategy per 12-pack} &\$ 4&\$ 2 \text { milion } & \$ 4 \text { million } \
&&\text { \$2 million } & \$ 1 \text { million } \
&\$ 5&\$ 1 \text { million } & \$ 3 \text { million } \
&&\$ 4 \text { million } & \$ 3 \text { million }
\end{array}\end{array}$
A) both will set their prices at $4
B) Pepsi will charge $4 and Coke will charge $5
C) Pepsi will charge $5 and Coke will charge $4
D) both will set their prices at $5

Question

Quizplus · Accepted Answer

Collusion means the firms cooperate to maximize their joint profits. The highest combined profit occurs when both charge $5, resulting in $3 million each, totaling $6 million.

(Table) in the Payoff Matrix, Two Possible Pricing Strategies for One