Answer: Please refer to Explanation
Explanation:
These firms are profit maximising and so will look for the higher payoff.
a) If Movietonia prices high, Videotech will make more profit if it chooses a ___LOW_____ price, and if Movietonia prices low, Videotech will make more profit if it chooses a ___LOW__ price.
• Looking at the matrix, if Movietonia charges high, Videotech can take advantage and charge Low. In doing so they would be making a profit of $15 million while Movietonia would make only $2million in profit.
• If Movietonia charges Low then Videotech would be better off charging Low as well because charging high would make them earn $2 million profit whereas charging Low will make them earn an $8 million profit.
b) If Videotech prices high, Movietonia will make more profit if it chooses a __LOW___ price, and if Videotech prices low, Movietonia will make more profit if it chooses a __LOW___ price.
• If Videotech were to charge a high price, it would be more beneficial to Movietonia to charge a low price. That way they can make $15 million in profit.
•If Videotech then decide to charge a low price, Movietonia will do best if they charge a Low Price as well. This way they make $8 million in profit and it's really all they can do as charging high would mean they only make $2 million in profit.
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