Bert and Ernie are noncolluding oligopolists. If both choose a high price strategy, each makes $40 in profits; if both choose a low price strategy, each makes $30 in profits. If Bert chooses a high price strategy and Ernie chooses a low price strategy, Bert makes $20 in profits and Ernie makes $60 in profits, while if Bert chooses a low price strategy and Ernie chooses a high price strategy, Bert makes $60 in profits and Ernie makes $20 in profits. Which combination of pricing strategies would you expect Bert and Ernie to adopt if they act independently?

Question

Quizplus · Accepted Answer

If Bert and Ernie act independently, they will likely choose the low price strategy because it is the dominant strategy for both. Each player earns more by choosing the low price regardless of the other player's choice, leading to both choosing low prices and earning $30 each.

Bert and Ernie Are Noncolluding Oligopolists