Firms Alba Inc. and Bute Inc. are duopolists selling firecrackers. Each of them has the

option to charge high prices or low prices. Alba was longer in the business and

its cost

structure allows for higher profits.

Also, Alba enjoys a strong reputation among

customers and is able to charge higher prices.

The payoff matrix is as follows:

Bute Inc.

High

Low

Alba Inc.

High

200, 120

100, 150

Low

50,0

50, 25

a) Does this game have a dominant strategy equilibrium? Explain.

b) Does

this game have a Nash equilibrium in pure strategies

? If so, how many? Identify

it / them

Explain.

c) Can Alba induce Bute to charge a high price by threatening to charge a low price

otherwise?