Two oligopolists have to decide on their pricing strategy. Each can choose either a high or a low price. If they both choose a high price, each will make $12 million, but if they both choose a low price, each will make only $8 million. If one sets a high price and the other a low one, the low-priced firm will make $16 million, but the high-priced firm will make only $4 million.
In the absence of collusion, each will .

Considering absence of collusion,the firms will choose low price in this instance.

Explanation:

First,focusing on all the possible payoffs for the firms under low price situation, the possible individual payoffs for the firms are $8 million and $16 million considering that the other firm chooses low price and high price respectively.Now, regarding the individual payoffs from choosing high price, the possible payoffs for the firms are $12 million and $4 million, considering that the other firm chooses high price and low price respectively.Therefore, notice that considering all possible scenarios,both the minimum and maximum payoffs from choosing low price are actually higher than the same estimates under choosing higher price.Hence, to ensure a higher subsequent individual payoff, both the firms would expectedly choose lower price considering the possibilities of both higher minimum and maximum payoff compared to choosing higher price.