1 Car Makers The table below shows the profits to Toyota (player 1) and to GM (p
ID: 1136698 • Letter: 1
Question
1 Car Makers The table below shows the profits to Toyota (player 1) and to GM (player 2) depending upon whether each enters or does not enter the market for electric automobiles. Player 2 (GM) Enter Not Enter Player 1 Enter ITO.4 250,0 (Toyota) Not Enter 0, 200 0, 0 1. Does either firm have a dominant strategy? 2. What is the Nash Equilibrium? 3. Suppose that the US government offers to pay GM a subsidy of 50 if it enters the market. The table below shows the new profits to Toyota and GMM. What is the Nash Equilibrium now? Plaver 2 (GM Enter Not Enter Player 1 Enter | 10, 101 250 0 (Toyota) Not Enter 0, 250 0, 0Explanation / Answer
1) A dominant strategy is the best course of action that is selected by the player irrespective of the actions selected by the rivals. Here Player 1 has a dominant strategy of Enter because its profits are 10 vs 0 and 250 vs 0 when it decides to Enter in case Player 2 decides to Enter as well as Not Enter. However Player 2 does not have a dominant strategy.
2) Player 1 selects Enter. Then player 2 will Not Enter because if it Enters, its profits are -40 so it is better to have 0 profits.
3) In this case both players have dominant strategy to Enter and this becomes a Nash Equilibrium where both Enter.
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