Problem 4:

Two firms at the Muscat international airport have the rights to carry passengers to and from hotels in Al-Qurum.These two firms, Khalid Travels, and Modern Travels operate nine-passenger vans.These Duopolists cannot compete with price, but they can compete through advertising.Their payoff matrix is below:

Modern Travels

Increase Advertising

Don't increase advertising

Khalid Travel

Increase Advertising

25, 15

30, 0

Don't increase advertising

15, 20

40, 5

a)Does each firm have a dominant strategy?If so, explain and what that strategy is.

b)What is the Nash equilibrium?Explain where the Nash equilibrium occurs in the payoff matrix.

c)Why, when Khalid Travel plays increase advertising and Modern Travels plays don't increase advertising is not a Nash Equilibrium?