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Analysis of a payoff matrix for a dominant strategy

The Candle Corporation and the Wick Company are the only producers of a very sophisticated type of flammable material. They each can engage in either a high or low level of advertising in trade journals. The payoff matrix is as follows:

Wick Company
Low Level High Level
Candle
Corp. Low Level Wick - $13 million Wick - $12 million
Candle - $12 million Candle - $11 million

High Level Wick - $12 million Wick - $11 million
Candle - $13 million Candle - $12 million

a. Will Candle engage in a high or a low level of advertising in trade journals?

b. Will Wick engage in a high or a low level of advertising in trade journals?

c. Is there a dominant strategy for each firm?

Solution This solution is FREE courtesy of BrainMass!

To solve through this type of question you begin by seeing if each player has a dominant strategy.

First, suppose Wick chooses Low...it follows that Candle Corps Best response is to choose High
since $13 is a better payoff than $12

now, suppose Wick chooses High...it follows that Candle Corps Best response it to choose High
since $12 is a better payoff than $11

SO CANDLE CORP HAS A DOMINANT STRATEGY OF "HIGH LEVEL"

Next, suppose Candle Corp chooses Low...it follows that Wick's Best response is to choose Low
since $13 is a better payoff than $12

now, suppose Candle Corp chooses High...it follows that Wick's Best response it to choose Low
since $12 is a better payoff than $11

SO CANDLE CORP HAS A DOMINANT STRATEGY OF "LOW LEVEL"