Scenario: Two rival firms charge equal prices for their products, which are perfect substitutes. Firm 1 is considering offering a 10 percent discount on the market price to increase sales. The game tree below shows the respective payoffs to each firm, depending on the decisions each makes.
In equilibrium,
A. neither firm will offer a discount
B. Firm 1 will offer a discount, while Firm 2 will not offer a discount
C. Firm 1 will continue charging the original price, while Firm 2 will offer a discount
D. both firms will offer a discount