1. Consider a game with two clothing manufacturers, Calico and Verve. Each firm produces a men's dress shirt which is sold through mail order. Verve must decide whether to charge a low price, medium price or a high price. Calico being a little more upscale must decide between a medium price, high price and very high price. Furthermore, assume the firms make their pricing decisions simultaneously and the game is only played once. Assume the following payoff matrix: Verve Low Price Medium Price High Price Medium Price (10, 5) (9, 3) (7, 2) Calico High Price (5, 4) (8, 6) (6, 1) Very High Price (7, 5) (7, 6) (8, 7) payoff: (Calico, Verve) (a) Identify the dominant strategy equilibrium(s), if any. Justify your answer. (3 marks) (b) Identify the Nash equilibrium(s), if any. Justify your answer. (3 marks)

1. Consider a game with two clothing manufacturers, Calico and Verve. Each rm produces a men's dress shirt which is sold through mail order. Verve must decide whether to charge a low price, medium price or a high price. Calico being a little more upscale must decide between a medium price, high price and very high price. Furthermore, assume the rms make their pricing decisions simultaneously and the game is only played once. Assume the following payoff matrix: Verve Low Price Medium Price High Price Medium Price (10, 5) (9, 3) (7, 2) Calico High Price (5, 4) (8, 6) (6, 1) Very High Price (7, 5) (7, 6) (8, 7) payoff: (Calico, Verve) (a) Identify the dominant strategy equilibrium(s), if any. Justify your answer. (3 marks) (b) Identify the Nash equilibrium(s), if any. Justify your