Question

Two oligopoly firms are in the process of evaluation their marketing strategies. Firm 1 can generate estimated profits of $10 mil. From strategy A if the second firm reacts by strategy C abd $15 mil. From strategy A if the second firm reacts by strategy D. On the other hand firm 1 may follow strategy B which could return profits of $8 mil. Or $9 mil. If firm 2 reacts by strategy C or D respectively. The second firm’s potential profits are $8 and $12 mil. From strategy C depending on whether firm 1 undertake strategy A or B and $7 and $8 mil. From strategy D depending on whether firm 1 follows strategy A or B.

a.Construct the payoff table for the above industry

b. Does each firm have a dominant strategy? What it is?

c. Does the industry move e toward and equilibrium position? If so, where?

Answer 1