Two firms are planning their marketing strategies. Firm K can earn $35 million i
ID: 1167747 • Letter: T
Question
Two firms are planning their marketing strategies.
Firm K can earn $35 million in profits from strategy S if firm L responds with strategy P, and $7.5 million in profit from S if L responds with strategy Q. Firm K can follow strategy T, which returns $26 million if firm L responds with strategy P and $5 million if L responds with strategy Q.
Firm L’s potential profits would be $10 million and $18 million from strategy P, depending on whether firm K implements strategy S or T. Firm L’s profits from strategy Q would be $14 million or $12 million depending on whether firm K follows strategy S or T.
a. Construct the payoff table.
b. Does either firm have a dominant strategy? Dominated? Is there a stable equilibrium?
Explanation / Answer
Yes. Firm K has a dominant strategy as Strategy S because it gives the maximum payoff, and Firm L has a dominant strategy of Strategy P. The other strategies are dominated strategy.
No. There is no stable equilibrium.
Firm K Strategy S Strategy T Firm L Strategy P 10, 35 18, 26 Strategy Q 14, 7.5 12, 5Related Questions
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