Case Study #2: “Pricing Games: Sony PlayStation and Microsoft Xbox”(Due Date: April 4 at 6:30PM)Name: TJQuestion 1: Given the information in Exhibits 1, 2, and 3 and assuming that collusion does notoccur, wou
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Case Study #2: “Pricing Games: Sony PlayStation and Microsoft Xbox”
(Due Date: April 4 at 6:30PM)
Name: TJ
Question 1: Given the information in Exhibits 1, 2, and 3 and assuming that collusion does not
occur, would you predict that Sony and/or Microsoft will want to reduce console prices by $100?
Complete the payoff matrix below to analyze this two-player simultaneous game by (1) replacing
the player names with the names of the firms, (2) appropriately renaming the players’ strategies,
and (3) calculating the payoffs for each player in the four possible outcomes. You can assume
Nintendo monitors its competitors’ actions, but has no plans to change its price. (5 points)
Answer 1:
Player 2
Strategy 1 Strategy 2
Player
1
Strategy 1 $A , $B $A , $B
Strategy 2 $A , $B $A , $B
Based on the calculation, when Sony and Microsoft reduce their prices for their console by
$100.00 resulted in higher profit. I believe that both organizations lower their prices so they can
attain comparable earnings for foreseeable future.
Question 2: Assume the demand curves implied by the data in Exhibit 1 are linear. How many
units of PS3 and Xbox 360 will Sony and Microsoft sell, respectively, if they both charged $399?
How many units will each firm sell if they both charged $299? Use your answers to calculate the
arc price elasticities of demand for Sony and Microsoft if they both initially charged $399 then
both dropped their price to $299. Based on your arc price elasticity of demand calculations,
would you recommend Sony to increase or decrease its price for PS3 if Sony solely wanted to
increase total revenue? Would you make the same price recommendation to Microsoft if it was
solely interested in increasing total revenue? (5 points)
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