Question

Consider the following game:

		ABC Inc.
		Offer Rebate	No Rebate
XYZ Corp	Offer Rebate	(20, 10)	(30, 0)
	No Rebate	(12, 16)	(20, 4)

Find each firm’s dominant strategy, if any. [5 pts.]

Identify the Nash Equilibrium of this game. [5 pts.]

Answer 1

Offer rebate is the dominant strategy of XYZ Corp, as the payoff from offering rebate is higher for all the corresponding values from strategy no rebate, or 20 and 20 are greater than 12 and 20 respectively. Similarly, ABC INC. also has the strategy offer rebate as the dominant strategy.

	Offer rebate	No rebate
Offer rebate	20*,10*	30*,0
No rebate	12,16*	20,4

Offer debate for both the parties is the Nash equilibrium of the game. As this is the best response for both the parties for any other strategy of the other player.