Firms X and Y face the following payoffs in terms of profits, according to which of two prices - a high price or a low price - that each one charges. Each firm must choose whether to charge the high price or the low price, but does not know what the other will do.
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Firm X: high price
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Firm X low price
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Firm Y: high price
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X: £10m
Y: £8m
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X: £13m
Y: £4m
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Firm Y: low price
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X: £5m
Y: £9m
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X: £7m
Y: £6m
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In the absence of collusion, which combination of strategies is most likely to occur?
Select one:
A. Both firms set the low price.
B. X sets the low price and Y sets the high price.
C. X sets the high price and Y sets the low price.
D. Both firms set the high price.
E. Any of the four combinations of strategies is likely, depending on what each firm predicts that its rival is most likely to do.