Suppose that Toyota and GM are considering entering a market for electric cars and that their profits from entering or not entering the market are given in the table below.

(a) Does GM have a dominant strategy? If so, what is it?

GM's dominant strategy is to enter no matter when Toyota decides to not enter

(b) Does Toyota have a dominant strategy? If so, what is it?

Toyotas dominant strategy is to not enter when GM does not enter

(c) What is the Nash Equilibrium?

Nash equilibrium is GM enters and Toyota does not enter

(d) Is there any incentive for the two firms to have a collusive outcome different from the Nash

equilibrium? Please explain.

There is no incentive to collude. This is because if the firms decide to collude, one of the firms will be worse off and has no incentive to collude.

 

Enter -40 GM Do not enter Enter 10 250 Toyota 0 Do not enter 0 200 0 0