Question

The table below is an application of a one-shot game. Identify and explain the dominant strategy of each firm and the Nash equilibrium.

	Firm B
Firm A	Price Strategy $	300	500
	300	10,000; 10,000	50,000; -15,000
	500	-15,000; 50,000	30,000; 30,000

Answer 1

When Firm A chooses $300 price strategy, Firm B's best response is $300 price strategy (10,000)
When Firm A chooses $500 price strategy, Firm B's best response is $300 price strategy (50,000)
So, Firm B's dominant strategy is $300 price strategy as it is Firm B's best response irrespective of Firm A's strategy choice.

When Firm B chooses $300 price strategy, Firm A's best response is $300 price strategy (10,000)
When Firm B chooses $500 price strategy, Firm A's best response is $300 price strategy (50,000)
So, Firm A's dominant strategy is $300 price strategy as it is Firm A's best response irrespective of Firm B's strategy choice.

The nash equilibrium of the game is (10,000, 10,000) or ($300, $300) as best response of both firms occur simulatenously at this outcome.