St. Petersburg Low Price .50 High Price $1.00 Tampa Tribune Low Price .50 A. $45

Question

St. Petersburg
Low Price .50 High Price $1.00
Tampa Tribune Low Price .50 A. $45,00, 30,00 B. 35,000, 20,000
High Price $1.00 C. $40,00, 45,00 D. 50,000, $40,000







4. Tampa Tribune's dominated strategy is ____________ (low price, high price, it has no dominated strategy).


5. Cell _____ (A, B, C, D) is a Nash equilibrium.


6. The Nash equilibrium cell in question 5 _______ (is, is not) a dominant strategy equilibrium

7. Cell A ________ (is, is not) strategically stable.


8. Cell B ________ (is, is not) strategically stable.


9. Cell D ________ (is, is not) strategically stable.


10. This newspaper pricing decision ________ (is, is not) a Prisoners' Dilemma.

Explanation / Answer

4) Tampa Tribune's dominated strategy is it has no dominated strategy.

Dominated strategies are strategies or decisions that are never the best strategy forany of the decisions that rivals might make. Therefore, a dominated strategy wouldnever be chosen and should be ignored or eliminated for decision-making purpose

5) Cell __A__ is a Nash equilibrium.

A Nash equilibrium is a set of actions or decisions for which all managers are choosing their best actions given the actions they expect their rivals to choose.

6) The Nash equilibrium cell in question 5 is not_ a dominant strategy equilibrium.

All dominant strategy equilibria are also Nash equilibria, but Nash equilibria can occur without either dominant or dominated strategies.

7) Cell A _is__ strategically stable.

In Nash equilibrium, no single firm can unilaterally (by itself) make a differentdecision and do better. This characteristic of Nash equilibrium is called strategic stability, and it provides the fundamental reason for believing that strategic decision makers will likely decide on a Nash pair of decisions.

8) Cell B __is not___ strategically stable.

If St. Petersburg Times believes Tampa Tribune is going to price low, St. Pete Times could unilaterally lower price to $0.50 and increase its payoff form $20,000 to $30,000.

9) Cell D __is not___ strategically stable.

If St. Petersburg Times believes Tampa Tribune is going to price high, St. Pete Times could unilaterally lower price to $0.50 and increase its payoff form $40,000 to $45,000.

10) 10. This newspaper pricing decision _is not___ a Prisoners' Dilemma.

A prisoners’ dilemma arises when all rivals possess dominant strategies, and in dominant strategy equilibrium, they are all worse off than if they had cooperated in making their decisions.

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