Answer:
The question is based on the economics theory named the game theory. Economists frequently use it to analyze the outcomes for adversary firms.
Explanation:
To solve this problem we need to pay attention to the best outcome for each firm given the choices of the other firm. So, when Pictech chooses a higher price, Flashfone should choose between a high or low price. The firms must keep choosing until they run out of options.
To have a dominant strategy, the firms should always choose a low price.
Based on the game theory:
If Flashfone prices high, Pictech will make more profit if it chooses a (high,low) __low___ price, and if Flashfone prices low, Pictech will make more profit if it chooses a(high,low)____low___ price.
If Pictech prices high, Flashfone will make more profit if it chooses a(high,low)_____low_price, and if Pictech prices low, Flashfone will make more profit if it chooses a (high,low) ___low___ price.
Considering all of the information given, pricing high (is, is not) __is not____ a dominant strategy for both Flashfone and Pictech.
They will end up choosing the low price strategy. Both Flashfone and Pictech will choose a low price.
The answer is true, because the prisioner's dilema is a game were both parties know that the outcome can be worse for both. So they rather play in a way that is better for their interests. In the firms' case, they could have choose higher prices, but they didn't because each of them intented to charge a lower price and outsell the other firm. Meaning that, the one with the lower price, would sell more smartphones.
