Table 12.2 Table 12.2 Shows the Payoff Matrix for London Drugs and Matrix

question 100

Multiple Choice

Table 12.2

Table 12.2 shows the payoff matrix for London Drugs and FutureShop from every combination of pricing strategies for the popular PlayStation 3. At the start of the game, each firm charges a low price and each earns a profit of $7,000.
-Refer to Table 12.2.Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?

• A)No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000.
• B)No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game.
• C)No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price.
• D)Yes, the current situation is a Nash equilibrium.

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Definitions:

Chauvinism

Excessive or prejudiced loyalty or support for one's own cause, group, or gender, often disregarding reason or fairness.

Group Cohesiveness

The degree to which members of a group are attracted to each other and motivated to stay in the group.

Polarization

In psychology, the process by which an individual's opinions or attitudes become more extreme, often influenced by group dynamics.

Cautious Decisions

Decisions made with careful consideration of potential risks and consequences to minimize the likelihood of adverse outcomes.