Exhibit 15-5 Refer to Exhibit 15-5.In the game depicted,between two cereal producers is:

Question

Exhibit 15-5  Refer to Exhibit 15-5.In the game depicted,between two cereal producers is:

Quizplus · Accepted Answer

In this game, both firms have the option to either price high or price low. If both firms price high, they both earn $10 million in profits. If both firms price low, they both earn $5 million in profits. However, if one firm prices high while the other prices low, the firm that prices high earns $12 million in profits while the firm that prices low earns only $2 million in profits.

Thus, both firms have an incentive to price low, since if one firm prices high, the other firm can earn higher profits by pricing low. However, if both firms collude and price high, they can both earn higher profits. Therefore, the best choice for both firms would be to collude and price high.