(Table) HH Gregg and Best Buy are competing for sales for their newest high-capacity mobile device battery packs. Each firm has a pricing strategy of either a high price or a low price. Profits for each store are listed in the payoff boxes, with Best Buy's payoff listed first. Based on the table, why is the game characterized as a prisoner's dilemma game?
$\begin{array}{c}
\quad \quad \quad \quad \quad \quad \quad \quad \text { HH Gregg }\
\begin{array}{ccc}
\text { Best Buy }\
&& \text { High } & \text { Low } \
&\text { High } & 100,100 & 30,120 \
&\text { Low } & 120,30 & 50,50
\end{array}\end{array}$
A) Given dominant strategies, only Best Buy is able to achieve a high-profit outcome.
B) HH Gregg is forced into keeping prices high; hence, it is held "prisoner."
C) There exists a mutually better outcome for both players as long as one player deviates from the Nash equilibrium.
D) There exists a mutually better outcome for both players; however, it is not rational to play the strategies that result in this outcome (which requires collusion) in a one-time game.

Question

(Table) HH Gregg and Best Buy are competing for sales for their newest high-capacity mobile device battery packs. Each firm has a pricing strategy of either a high price or a low price. Profits for each store are listed in the payoff boxes, with Best Buy's payoff listed first. Based on the table, why is the game characterized as a prisoner's dilemma game?
$\begin{array}{c}
\quad \quad \quad \quad \quad \quad \quad \quad \text { HH Gregg }\
\begin{array}{ccc} 
\text { Best Buy }\
&& \text { High } & \text { Low } \
&\text { High } & 100,100 & 30,120 \
&\text { Low } & 120,30 & 50,50
\end{array}\end{array}$
A) Given dominant strategies, only Best Buy is able to achieve a high-profit outcome.
B) HH Gregg is forced into keeping prices high; hence, it is held "prisoner."
C) There exists a mutually better outcome for both players as long as one player deviates from the Nash equilibrium.
D) There exists a mutually better outcome for both players; however, it is not rational to play the strategies that result in this outcome (which requires collusion) in a one-time game.

Quizplus · Accepted Answer

The game is characterized as a prisoner's dilemma because both firms have a dominant strategy (setting low prices), leading to an equilibrium (low price, low price) that is worse for both compared to if they both chose high prices. However, choosing high prices is not rational without the ability to enforce an agreement, as each firm has an incentive to deviate to achieve a higher payoff.

(Table) HH Gregg and Best Buy Are Competing for Sales