Question

Payoffs below are in millions of dollars              

                                                                          Firm B                      

                                                          Strategy 1        Strategy 2

                                                                          

                                        Strategy 1:   23, 24                25, 27                                   

                        Firm A                                                     

                                        Strategy 2:   26, 30               21, 32                                               

                                                

             5. (2 pts.) In this single shot simultaneous play game, identify any and all Nash equilibria.

            

6. (2 pts.) Suppose Firm B has the option of going first, i.e. being a first mover in a sequential game with the above payoffs. To go first though, Firm B will incur a cost of $2 million dollars. If firm B chooses not to go first, then it returns to the simultaneous play game as before in #4. Should Firm B

chose to go first or not? Carefully explain why or why not.  

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For question 6, here is the scenario to get question 4:

Firm B                      

                                                          Strategy 1 Strategy 2

                                                                          

Strategy 1: 28, 28 15, 35                        

Firm A                                                     

Strategy 2: 35, 15 20, 20                                    

                                                

            2. (2 pts.) Does Firm A have a dominant strategy? _______If yes, which strategy? _________

                                                                           (yes or no)

            3. (2 pts.) Does Firm B have a dominant strategy? _______If so, which strategy? _________

                                                                           (yes or no)    

                        

4. (2 pts.) Are there any Nash equilibria? If there are any Nash equilibria, identify any and all of them.

Answer 1

(5)

When Firm B chooses Strategy 1, Firm A's best strategy is Strategy 2 since payoff is higher (26 > 23).

When Firm B chooses Strategy 2, Firm A's best strategy is Strategy 1 since payoff is higher (25 > 21).

When Firm A chooses Strategy 1, Firm B's best strategy is Strategy 2 since payoff is higher (27 > 24).

When Firm A chooses Strategy 2, Firm B's best strategy is Strategy 2 since payoff is higher (32 > 30).

Therefore, Nash equilibrium is: (Firm A chooses Strategy 1, Firm B chooses Strategy 2) [See below].

NOTE: As per Answering Policy, 1st question is answered.