Exhibit 9-4 Two-Firm Payoff Matrix

-Suppose costs are identical for the two firms in Exhibit 9-4.Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price.Under these "tit-for-tat" conditions,equilibrium will be established by:

Question

Exhibit 9-4 Two-Firm Payoff Matrix
 
-Suppose costs are identical for the two firms in Exhibit 9-4.Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price.Under these "tit-for-tat" conditions,equilibrium will be established by:

Quizplus · Accepted Answer

In a "tit-for-tat" strategy, each firm matches the other's pricing strategy. If both firms assume the other will not undercut them, they will both charge the high price, leading to equilibrium at $1,000 for both.