Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell smart phones: Flashfone and Pictech. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its phones. Pictech Pricing High Low Flashfone Pricing High 11, 11 2, 18 Low 18, 2 10, 10 For example, the lower-left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $18 million and Pictech will earn a profit of $2 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. If Flashfone prices high, Pictech will make more profit if it chooses a price, and if Flashfone prices low, Pictech will make more profit if it chooses a price. If Pictech prices high, Flashfone will make more profit if it chooses a price, and if Pictech prices low, Flashfone will make more profit if it chooses a price. Considering all of the information given, pricing low a dominant strategy for both Flashfone and Pictech. If the firms do not collude, what strategies will they end up choosing? Flashfone will choose a low price and Pictech will choose a high price. Both Flashfone and Pictech will choose a low price.

Flashfone will choose a high price and Pictech will choose a low price. Both Flashfone and Pictech will choose a high price. True or False

The game between Flashfone and Pictech is not an example of the prisoners' dilemma. True False