Question

Suppose that​ Firm A and Firm B are independently deciding whether to sell at the low price or a higher price. The payoff matrix below shows the profits per year for each company resulting from the two price options. a. Does​ Firm A have a dominant strategy? The dominant strategy for Firm A is a low price. No, there is no dominant strategy for Firm A. The dominant strategy for Firm A is a high price.

Answer 1

Answer: No, there is no dominant strategy for Firm A.

Explanation:

Dominant strategies would refer to those that a Firm can take and still have a better payoff regardless of what the other Firm/player chooses. From the above, there is no dominant strategy for Firm A because there is no single strategy that they can follow that will maximise payoff regardless of what B does.

For instance, if Firm A were to charge a lower price, and Firm B charged a higher price, Firm A would make less than Firm B at $2 million. They make less regardless of any decision they make.