-Refer to Figure 2.7, which summarizes the payoffs in thousands of dollars to two firms in a duopolistic industry arising from alternative pricing strategies. If both firms adopt a maximin decision rule, the strategy profile for this game is:
A) {Raise price, Raise price}.
B) {Raise price, Lower price}.
C) {Lower price, Raise price}.
D) {Lower price, Lower price}.

Question

-Refer to Figure 2.7, which summarizes the payoffs in thousands of dollars to two firms in a duopolistic industry arising from alternative pricing strategies. If both firms adopt a maximin decision rule, the strategy profile for this game is:
A) {Raise price, Raise price}. 
B) {Raise price, Lower price}. 
C) {Lower price, Raise price}. 
D) {Lower price, Lower price}.

Quizplus · Accepted Answer

The maximin decision rule means that each firm chooses the strategy that minimizes its maximum loss. In this case, both firms have a maximum loss of -100 if they both lower their prices. Therefore, both firms will choose to raise their prices, resulting in the strategy profile {Raise price, Raise price}.