Final answer:
Without the specific payoff matrix, we cannot determine the exact pricing strategy Pizza Hut and Domino's Pizza will choose in Munich, but they will set their prices based on marginal costs and the desired profit margin. The correct answer is it depends on other factors not provided in the scenario.
Step-by-step explanation:
To determine which prices the pizza stalls set, assuming they are rational and profit-maximizing, we need to understand the concept of monopolistic competition, as highlighted in the example of the Authentic Chinese Pizza store. A firm in monopolistic competition will set prices based on its marginal revenues and marginal costs to determine the profit-maximizing level of output. Each pizza stall, be it Pizza Hut or Domino's Pizza, will consider the cost of producing pizzas at the margin—ingredients, equipment, rent, and wages—as well as their desired profit margin, which influences the price they wish to charge.
Without the specific payoff matrix mentioned in the question to analyze the precise decision dynamics between Pizza Hut and Domino's Pizza, we cannot definitively provide an answer. They could potentially choose any pricing strategy (low, medium, or high) that they believe will maximize their profits based on the market demand and their cost structures in Munich's city center. However, in a typical monopolistic competition setting, firms might try to differentiate themselves through unique selling propositions rather than just competing on price alone.
Thus, the answer to the question of which prices the pizza stalls will set is d) It depends on other factors not provided in the scenario, such as the detailed payoff matrix, cost structures, and individual strategies of Pizza Hut and Domino's Pizza in the context of monopolistic competition.