Question

Firm A	Firm B
		Low Price	High Price
	Low Price	(10,9)	(15,8)
	High Price	(-10,7)	(11,11)

(a) Does Firm A have a dominant strategy? What is it? Please explain.

(b) Does Firm B have a dominant strategy? What is it? Please explain.

(c) Is (High Price, High Price) a Nash equilibrium? Please explain.

Answer 1

a) When B choose Low price, A will choose Low price as 10>-10

When B choose High price, A will choose Low price as 15>11

So, A has a dominant strategy of choosing Low price

b) When A choose Low price,B will choose Low price as 9>8

When A choose High price, B will choose High price as 11>7

So, B does not have a dominant strategy

c) High price,High price is not a Nash equilibrium because at this payoff, A can deviate from the outcome and choose Low price as 15>11

The Nash Equilibrium in this payoff table is Low Price,Low Price at which neither party has an incentive to deviate from the outcome