1. Use the information in the following table, which summarizes the payoffs (i.e

Question

1.
Use the information in the following table, which summarizes the payoffs (i.e., profit) to two firms that must decide between an average
Firm 2
Average Quality High Quality
Firm 1 Average Quality 600, 600 400, 1100
High Quality 1100, 400 900, 900
a. What is each player's dominant strategy? Explain your reasoning.
b. Referring to the table above, is this an example of a prisoner's dilemma game? Why or why not?
c. Is there a Nash equilibrium? If so, what is it?
-quality and a high quality product, to answer the questions that follow


2.
Assume the market shares of the six largest firms in an industry are 12 percent each. Calculate the six
-firm concentration ratio and Herfindahl-Hirschman index for this industry. What does each of these measures have to say about the degree of concentration in the industry? Explain.

Explanation / Answer

I can only answer part 1: Both firms dominant strategy will be to produce high quality goods because the payoff is higher regardless of what the other firm does. This is not an example of the prisoners dilemma because the dominant strategy does not leave players worse off than if they colluded in another way. In the prisoners dilemma each prisoner can rat on the other and when they both rat on eachother they are hurt. There is a nash equillibrium and that is for both companies to create high quality goods.

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