10. The table below shows the annual profits of two paint manufacturers. At present they both charge 15.00 per litre for gloss paint. Their annual profits are shown in Box A. The other boxes show the effects on their profits of one or the other, or both firms reducing their price to 12.00.

	Durashine's price 15.00 12.00
15.00 Supasheen's	A 6 million each	C 2 million for Supasheen 8 million for Durashine
price 12.00	B 9 million for Supasheen 3 million for Durashine	D 4 million each

1. What is Supasheen's best response if it expects Durashine to charge a price of 15.00?

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1. What is Supasheen's best response if it expects Durashine to charge a price of 12.00?

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1. What is Durashine's best response if it expects Supasheen to charge a price of 15.00?

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1. What is Durashine's best response if it expects Supasheen to charge a price of 12.00?

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(e) Why is this known as a dominant strategy game?

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(f) Assume now that the 'game' between Supasheen and Durashine has been played for some time with the result that they both learn a 'lesson' from it. What are they likely to do?

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Durashine now faces competition from firms other than Supasheen. It thus decides to consider some alternative strategies to adopt. It examines four options. The first is to introduce a 10 per cent price cut; the second is to introduce a new brand of high gloss durable emulsion paint; the third is to launch a new marketing campaign; the fourth is to introduce no change other than increasing its prices in line with inflation. The profit estimates (in m) for Durasheen and the average 'other firm' can be seen and vary depending on how each firm reacts. The first number in each case refers to Durashine's payoff.

		Other firms' responses
		a	B	c	d	e	f
Strategies	1	2,3	3,4	1,5	2,-1	2,2	3,3
for	2	4,-1	2,5	2,1	3,6	2,3	1,5
3	1,1	1,0	4,4	-1,2	3,3	2,2
Durashine	4	4,4	6,2	3,1	-1,0	2,4	6,5

(g) Identify the Nash equilibria of this game...............................