9. A small town has only one pizza place, The Pizza Factory. A small competitor, Perfect Pies, is thinking about entering the market. The profits of these two firms depend on whether Perfect Pies enters the market and whether The Pizza Factory—as a price leader—decides to set a high price or a low price. Use the payoff matrix below to answer the questions that follow.

a. What is the dominant strategy of The Pizza Factory?

b. Does Perfect Pies have a dominant strategy?

c. What is the Nash equilibrium in this situation?

d. The combined profit for both firms is highest when The Pizza Factory sets a high price and Perfect Pies stays out of the market. If Perfect Pies enters the market, how will this entry affect the profits of The Pizza Factory? Would The Pizza Factory be willing to pay Perfect Pies not to enter the market? Explain.

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High price Perfect Pies Enter Stay out Perfect Pies makes $10,000 Perfect Pies makes $0 The Pizza Factory The Pizza Factory makes $20,000 Low price Perfect Pies loses $10,000 The Pizza Factory makes $50,000 Perfect Pies makes $0 The Pizza Factory makes $10,000 The Pizza Factory makes $25,000