Exhibit 9-5 Two-Firm Payoff Matrix

-Suppose costs are identical for the two firms in Exhibit 9-5.If both firms assume the other will compete and charge a lower price,equilibrium will be established by:

Question

Exhibit 9-5 Two-Firm Payoff Matrix
 
-Suppose costs are identical for the two firms in Exhibit 9-5.If both firms assume the other will compete and charge a lower price,equilibrium will be established by:

Quizplus · Accepted Answer

If both firms assume the other will compete and charge a lower price, they will both end up charging the low price to avoid losing market share, leading to an equilibrium where both charge the low price.