In Mountainville, there are two potential providers of cable TV: Kabletown and Sal's. Each firm can develop either a fast, high-quality fiber optic system (H) or a slower, lowquality coaxial cable system (L). Both simultaneously choose what to do. Market research indicates that the resulting profits to each firm for each pair of strategies are given by the following payoff matrix (payoffs are in $M):

Kabletown

H L

Sal's H 30, 30 50, 35

L 40, 60 20, 20

(a) [14 marks] Define what is a dominant strategy? Does either firm have a dominated strategy?

(b) [14 marks] Define what is a Nash equilibrium? What is the Nash equilibrium or equilibria outcome(s) of this game?

(c) [12 marks] Suppose that Sal's has a head start in establishing a network because of an arrangement with a local telephone company and can move first before Kabletown can act. Draw the game tree that takes into account this fact.

(d) [10 marks] Using backward induction, find the subgame perfect Nash equilibrium for the game in which Sal's moves first. What are the payoffs in this equilibrium?