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Consider the following 2-by-2 simultaneous-move game where the payoffs shown below are Firm 1's and Firm 2's profits. You can interpret the strategies High and

Consider the following 2-by-2 simultaneous-move game where the payoffs shown below are Firm 1's and Firm 2's profits. You can interpret the strategies High and Low as price levels.

Firm 2

High Low

Firm 1 High 10,10 6, 12

Low 12, 6 8, 8

(a) What is the Nash equilibrium?

(b) What strategies maximize the two firms' combined total profits?

(c) Does either firm have a dominant strategy? Which?

(d) Is this game an example of prisoners' dilemma? If so what is the dilemma?

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