Two gasstations, A andB, are locked in a price war. Each player has the option of raising its price(R) or continuing to charge the low price(C). They will choose strategies simultaneously. If both chooseC, they will both suffer a loss of $25. If one chooses R and the other choosesC, (i) the one that chooses R loses many of its customers and earns $0, and(ii) the one that chooses C wins many new customers and earns $250. If they both choose R the price war ends and they each earn $125.

Does either player have a dominantstrategy? Explain.

A.

The stations have a dominantstrategy, which is for Station A to pick C and Station B to pick R because this is a best response regardless of what the other station does.

B.

The stations have a dominantstrategy, which is to pick R because this maximizes their joint payoff.

C.

The stations have a dominantstrategy, which is to pick C because this is a best response regardless of what the other station does.

D.

The stations do not have dominant strategies because what works best depends on what the other station does.

E.

The stations have a dominantstrategy, which is for Station A to pick R and Station B to pick C because this maximizes their joint payoff.

What is the Nashequilibrium?

A.

The Nash equilibrium is for both stations to pick C.

B.

The Nash equilibria are for both stations to pick R and for both stations to pick C.

C.

The Nash equilibria are for Station A to pick C and Station B to pick R and for Station A to pick R and Station B to pick C.

D.

The Nash equilibrium is for both stations to pick R.

E.

The game does not have a Nash equilibrium.