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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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