Scenario: Two firms in a market sell identical goods and charge a price of $5 per unit. However, the cost of a crucial input used in producing these goods has increased. As a result, both firms are considering increasing the price of the good to $6. If the firms do not raise their prices at the same time, the firm that raises the price stands to lose market share. The payoff matrix shows the respective payoffs on the basis of the prices charged by each firm. Here, payoffs denote the number of units sold by each firm. The first number listed in each cell is the payoff to the row player, and the second number listed is the payoff to the column player.

-Refer to the scenario above.This is an example of a(n)________.

Question

Scenario: Two firms in a market sell identical goods and charge a price of $5 per unit. However, the cost of a crucial input used in producing these goods has increased. As a result, both firms are considering increasing the price of the good to $6. If the firms do not raise their prices at the same time, the firm that raises the price stands to lose market share. The payoff matrix shows the respective payoffs on the basis of the prices charged by each firm. Here, payoffs denote the number of units sold by each firm. The first number listed in each cell is the payoff to the row player, and the second number listed is the payoff to the column player.
 
-Refer to the scenario above.This is an example of a(n)________.

Quizplus · Accepted Answer

This is a simultaneous-move game because both firms are making their pricing decisions simultaneously without knowing their opponent's decision. The strategy that both firms are likely to choose is to keep the price at $5 since the price increase to $6 would result in a lower payoff for both firms.

Scenario: Two Firms in a Market Sell Identical Goods and Charge