2.5 Visa and MasterCard are the two largest credit and debit card companies, with a combined market share exceeding 80 percent of the cards in circulation. Whenever a consumer buys a product using one of their cards, Visa or Master-

Card charges the selling company a fee. The firms can either charge a high fee or charge a low fee. The payoff matrix shows each company’s hypothetical economic profits.

a. Looking at only MasterCard’s profits, does MasterCard have a dominant strategy?

b. Explain what the Nash equilibrium is.

c. In the Nash equilibrium, do MasterCard’s managers use a mixed strategy or a pure strategy? Explain your answer

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Visa MasterCard Charge High Fee Charge Low Fee Charge $5 billion $4 billion High Fee $8 billion $6 billion Charge $4 billion $5 billion Low Fee $6 billion $5 billion