Apple and Samsung have two pricing strategies: Set a high (monopoly) price or set a low (competitive) price. Suppose that if they both set a competitive price, economic profit for both is zero. If both set a monopoly price, Apple makes an economic profit of $100 million and Samsung of $200 million. If Apple sets a low price and Samsung sets a high price, Apple makes an economic profit of $200 million and Samsung incurs an economic loss of $100 million; if Apple sets a high price and Samsung sets a low price, Apple incurs an economic loss of $50 million and Samsung makes an economic profit of $250 million.
Create the payoff matrix for this game.
• What is the equilibrium of this game?
• Is the equilibrium efficient?
• Is this game a prisoners' dilemma?