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Dominant Strategy Equilibrium and Nash Equilibrium

Suppose two firms, Firm Y, Inc., and Firm X, Inc., are locked in a bitter pricing struggle in the bottled water industry. In strategy A, pricing payoff matrix, Firm Y can choose a given row of outcomes by offering A price ("up") or B price ("down"). Firm X can choose a given column of outcomes by choosing to offer A price ("left") or B price ("right"). Neither firm can choose which cell of the payoff matrix to obtain; the payoff for each firm depends upon the pricing strategies of both firms.

Please see the attached document for the table with data and then consider:
a. Is there a dominant strategy equilibrium in this problem? If so, what is it? Please provide a detail explanation.
b. Is there a Nash equilibrium in this problem? If so, what is it? Please provide a detail explanation.

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a.) There is a dominant strategy for firm X: choosing A. Because in the matrix, we find that X's payoff by choosing strategy A is always higher than ...

Solution Summary

In just over 100 words, this solution analyzes the dominant strategy equilibrium and the Nash equilibrium. Values are given to support the interpretations being made.

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