Table 11-5 Table 11-5 Shows the Payoff Matrix for Wal-Mart

question 156

Multiple Choice

Table 11-5 Table 11-5 shows the payoff matrix for Wal-Mart and Target 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 11-5.Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor.What is the purpose of such a strategy?

• A)to signal to each other not to charge below the current low price
• B)to signal to each other that they will not hesitate to initiate a price war
• C)to signal to each other that they intend to charge the high price
• D)to signal to each other to share the market equally

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Definitions:

Sensory Adaptation

The mechanism where sensory receptors reduce their responsiveness to stimuli that remain constant over time.

Weber's Law

A principle in psychology that states the smallest perceptible difference in a stimulus is proportional to the intensity of the original stimulus.

High Threshold

A term indicating a level of high sensitivity or resistance to stimulus before a response is triggered.

Signal-detection Theory

A method for measuring the capacity to differentiate informative patterns from random, distracting ones.