(Table) in the Payoff Matrix, Two Possible Pricing Strategies for One

question 231

Multiple Choice

(Table) In the payoff matrix, two possible pricing strategies for one 12-pack of Coke and one of Pepsi are shown. The profit payoffs to each firm are also shown, where the top value in each outcome is the profit for Coke. What is the Nash equilibrium?
$\begin{array}{c}\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Pepsi's Pricing Strategy per 12-pack} \\\begin{array}{cc}&&\mathbf{\$ 4} & \mathbf{\$ 5} \\\text { Coke's Pricing Strategy per 12-pack} &\$ 4&\$ 2 \text { milion } & \$ 4 \text { million } \\&&\text { \$2 million } & \$ 1 \text { million } \\&\$ 5&\$ 1 \text { million } & \$ 3 \text { million } \\&&\$ 4 \text { million } & \$ 3 \text { million }\end{array}\end{array}$

• A) Both firms charge $5 per 12-pack.
• B) Pepsi charges $4 and Coke charges $5 per 12-pack.
• C) Both firms charge $4 per 12-pack.
• D) Pepsi charges $5 and Coke charges $4 per 12-pack.

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Definitions:

Holdback

A portion of the purchase price of an asset that is withheld until certain conditions have been met, ensuring fulfilment of contractual terms.

Recourse Obligation

A liability that allows lenders to claim assets of the borrower or guarantor, beyond the collateral securing the loan, in case of default.

Fair Value Adjustment

An accounting process to adjust the book value of an asset or liability to its market value or fair value.

Fair Values

The estimated market value of an asset or liability, reflecting the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.