Consider the following scenario. An oligopolist firm is considering whether to reduce the price of its product. It knows that if its rivals don't match its price cut, its profits will increase by $2.5 million. However, if its rivals do match its price cut, it will take a loss of $95,000. Based on past market outcomes and its limited knowledge of its rivals' pricing strategy, the firm believes that it's about 88% likely that its competitors will match its price cut. What is this firm's expected payoff from reducing its price? $466,400
−$95,000
$2,500,000
$2,179,100
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