Firm B Low price High price Low price (2,2) (10, -8) Firm A High price (-8,10) (
ID: 1222296 • Letter: F
Question
Firm B
Low price High price
Low price (2,2) (10, -8)
Firm A
High price (-8,10) (6,6)
What are the dominant strategies for Firm A and Firm B, respectively?
a. (low price, high price).
b. (high price, low price).
c. (high price, high price).
d. (low price, low price).
What are secure strategies for firm A and firm B respectively?
What are the Nash equilibrium strategies for firm A and B respectively?
If this one-shot game is repeated 100 times, the Nash-equilibrium payoffs of the players will be ________________ each period.
Explanation / Answer
d. (low price, low price).
Secure strategy for firm A is low price
Secure strategy for firm B is low price
Secure strategy known as a maximin strategy, this is a strategy that guarantees the best outcome under the worst conditions. In the game above, the worst outcome for player A if he/she chooses strategy Low price is a payoff of 2. The worst outcome for player A is he/she chooses strategy high price is a payoff of -8. The better of these outcomes is a payoff of 2. Therefore, strategy low price is a secure strategy for player A. By similar reasoning, Low price is a secure strategy for player B
Both firm playing strategy of Low price is the Nash equillibrium , (Low Price, Low Price) or (2, 2).
(2 , 2) each period .
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