Apple and Samsung are competing in a duopoly
If both companies charge a high price, they each earn $900 million in economic profit.
If both companies charge a low price, they each earn $500 million in economic profit.
If one company charges a high price and one charges a low price, the company charging the higher price earns $450 million in economic profit and the company charging the lower price earns $800 million in economic profit.
(a) Construct a payoff matrix displaying the information above.
(b) Does either company have a dominant strategy? If so, which one(s) and what is (are) the dominant strategy (ies)?
(c) In this game, does a Nash Equilibrium exist? If so, what are the profits that each firm receives at this equilibrium? If not, why?
(d) Is the equilibrium payoff in part (c) Pareto optimal? Which payoff equilibrium wouldfirms prefer? Is the preferred payoff easily sustainable, explain why or why not?