5. Imagine two firms are deciding whether to price high or price low. The payoff matrix...
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5. Imagine two firms are deciding whether to price high or price low. The payoff matrix shows the market share that Firm 1 can expect to obtain (as this is market share, this would be a zero-sum game, where the share to Firm 1 is the share lost by Firm 2). Firm 1 High Low High 30 50 Firm 2 Low 60 20 a. What, if any, is Firm 1's dominant strategy? b. What, if any, is Firm 2's dominant strategy? C. Is this game dominance or minimax solveable? If so, what is the Nash equilibrium? d. If the game is not dominance or minimax solveable, what is the mixed strategy that each firm should take? What would the Nash payoffs be with both firms following this strategy? 5. Imagine two firms are deciding whether to price high or price low. The payoff matrix shows the market share that Firm 1 can expect to obtain (as this is market share, this would be a zero-sum game, where the share to Firm 1 is the share lost by Firm 2). Firm 1 High Low High 30 50 Firm 2 Low 60 20 a. What, if any, is Firm 1's dominant strategy? b. What, if any, is Firm 2's dominant strategy? C. Is this game dominance or minimax solveable? If so, what is the Nash equilibrium? d. If the game is not dominance or minimax solveable, what is the mixed strategy that each firm should take? What would the Nash payoffs be with both firms following this strategy?
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