Dominant Strategies. Conceive of two competitors facing important strategic deci
ID: 3391406 • Letter: D
Question
Dominant Strategies. Conceive of two competitors facing important strategic decisions where the payoff to each decision depends upon the reactions of the competitor. Firm A can choose either row in the payoff matrix defined below, whereas firm B can choose either column. For firm A the choice is either “up” or “down;” for firm B the choice is either “left” or “right.” Notice that neither firm can unilaterally choose a given cell in the profit payoff matrix. The ultimate result of this one-shot, simultaneous-move game depends upon the choices made by both competitors. In this payoff matrix, strategic decisions made by firm A or firm B could signify decisions to offer a money-back guarantee, lower prices, offer free shipping, and so on. The first number in each cell is the profit payoff to firm A; the second number is the profit payoff to firm B.
Firm B
Competitive Strategy
Left
Right
Firm A
Up
$5 million, $10 million
$7.5 million, $4 million
Down
$1 million, $3.5 million
$5 million, $5 million
Is there a dominant strategy for firm A? If so, what is it? Justify
Firm B
Competitive Strategy
Left
Right
Firm A
Up
$5 million, $10 million
$7.5 million, $4 million
Down
$1 million, $3.5 million
$5 million, $5 million
Explanation / Answer
Yes. The.dominant strategy for A is Up.If B chooses left a payoff of 5 million can be achieved. On the other hand if firm B chooses Right a payoff of 7.5 million can be achieved. No matter what firm B chooses the highest payoff results for firm A.
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