We are presented with growth strategies Each firm is free to choose their own development strategy based on the profit potential of their choice.

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a) Does either firm have a dominant strategy? (6 Points)A dominant strategy is what you are going to do, knowing what they are going to dothis leads to the Nash EquilibriumExplain how and what the dominant strategy is (hint, there does not need to be two dominant strategies).

b) Is there a Nash equilibrium? Explain. (6 Points)

c) What is the socially optimal solution? (4 Points)

d) How can we arrive at this point (consider the Coase Solution). Explain the necessary payoff. (4 Points)

Payoff Matrix

MoBike

Maintain Flexibility Expand Aggressively

Maintain Flexibility O: Profit =$3 O:Profit = $1

M: Profit =$3 M: Profit = $4

Ofo

Expand Aggressively O: Profit =$4 O: Profit = $2

M: Profit =$1 M: Profit = $2