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

In a noncolluding oligopoly, both firms will likely choose the strategy that maximizes their own payoff given the other firm's choice. The low price strategy is a dominant strategy for both Bert and Ernie, as it results in higher profits regardless of the other player's choice. Thus, both are expected to choose the low price strategy, resulting in $30 profits each.

Bert and Ernie Are Noncolluding Oligopolists