The following table shows the payoffs (profits) of the two firms in a duapoly industry who produce a nondifferentiated product. Each firm has two options: charge a high price of $70, or the minimum possible price of $50. The first number in the payoff cells is the profit of Firm A, and the second number is the profit of Firm B. Assume that both firms are after maximum profit.

-Refer to the table above.If both firms decide to collude and charge $70 for their product,

Question

The following table shows the payoffs (profits) of the two firms in a duapoly industry who produce a nondifferentiated product. Each firm has two options: charge a high price of $70, or the minimum possible price of $50. The first number in the payoff cells is the profit of Firm A, and the second number is the profit of Firm B. Assume that both firms are after maximum profit.
 
-Refer to the table above.If both firms decide to collude and charge $70 for their product,

Quizplus · Accepted Answer

If both firms collude and charge a price of $70, each firm will earn a profit of $800. However, if one firm deviates from the collusion and charges $50 instead, then that firm will earn a profit of $1000 while the other firm earns only $500. Therefore, it is in each firm's best interest to deviate from the collusion and charge $50 instead. This will result in both firms earning a profit of $600.

The Following Table Shows the Payoffs (Profits) of the Two