Pilgrim’s Pride is the second-largest chicken supplier in the US - Edexcel - A-Level Economics A - Question 4 - 2022 - Paper 1

In this game theory model, we analyze the possible outcomes for Pilgrim's Pride and Tyson Foods based on pricing strategies. The two firms can choose to set either a High Price or a Low Price. The revenue outcomes can be represented in a payoff matrix:

                 | Tyson: High Price | Tyson: Low Price  
  --------------------------------------------------
  Pilgrim's High Price  | (361, 361)       | (500, 200)   
  --------------------------------------------------
  Pilgrim's Low Price   | (200, 500)       | (300, 300)   

From the matrix:

• If both firms set High Prices, they each earn $361 million.
• If Pilgrim's sets a High Price and Tyson a Low Price, Pilgrim's earns $500 million, while Tyson earns$200 million, incentivizing Tyson to lower its price.
• If Pilgrim's sets a Low Price while Tyson maintains a High Price, Pilgrim's reaps a significant $200 million and Tyson only$500 million.
• If both adopt Low Prices, revenue is reduced to $300 million each.

This collaboration likely occurs under the threat of the lowest payoff in price wars, which explains the collusion seen in the prices charged. A rational outcome for both firms is to agree upon a High Price which benefits them both over price competition.