Suppose two competitors, Coa, Inc., and Han, Inc., are locked in a bitter pricing struggle in the aluminum industry. In the limit pricing payoff matrix, Coa can choose a given row of outcomes by offering a limit price ("up") or monopoly price ("down"). Han can choose a given column of outcomes by choosing to offer a limit price ("left") or monopoly price ("right"). Neither firm can choose which cell of the payoff matrix to obtain; the payoff for each firm depends upon the pricing strategies of both firms
The given scenario involves two competitors in the aluminum industry, Coa, Inc. and Han, Inc., engaged in a pricing struggle. To analyze their potential outcomes, we can use a payoff matrix. In this case, the matrix is called a limit pricing payoff matrix.
To construct the limit pricing payoff matrix, we need to consider the possible strategies that each firm can choose. Coa has two options: offering a limit price or a monopoly price. Han also has two options: offering a limit price or a monopoly price. Thus, the matrix will have two rows (Coa's options) and two columns (Han's options).
For this explanation, let's say we number the rows from top to bottom as 1 (representing Coa's "up" strategy) and 2 (representing Coa's "down" strategy). We can number the columns from left to right as 1 (representing Han's "left" strategy) and 2 (representing Han's "right" strategy).
The cells of the matrix represent the outcomes (or payoffs) for both firms based on their chosen strategies. Each cell will contain the payoffs for Coa and Han in that particular situation.
It is important to note that neither firm can directly choose which cell of the payoff matrix they will obtain. The payoffs depend on the pricing strategies selected by both Coa and Han.
To fill out the matrix, we need information about the payoffs associated with each possible combination of strategies. Once we have that information, we can assign the corresponding payoffs in each cell.
To analyze the outcomes, we can use different theories such as game theory to determine the optimal strategies for Coa and Han. By considering factors like market conditions, cost structures, and competitive dynamics, we can derive insights on what strategies each firm should employ to maximize their payoffs in this pricing struggle.
Understanding the specific payoffs and the dynamics between Coa and Han would help in analyzing the matrix and finding the best strategies for each firm.