Explore BrainMass

Explore BrainMass

    Nash Equilibrium and Dominant Strategies

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    I need some help with answering this problem:

    Firm B
    Strategy Advertise Don't Advertise
    Firm A Advertise $4,$4 $20, $1
    Don't Advertise $1, 20 $10, $10

    A. Does anyone have a dominant strategy?
    B. What is the Nash Equilibrium?
    C. What is the socially optimal solution (at what point is total profit maximized)?
    D. How would a negotiated solution lead to this socially optimal solution?
    E. If you had to call in a mediator to negotiate this socially optimal solution, how much would they charge and why?

    © BrainMass Inc. brainmass.com October 10, 2019, 4:48 am ad1c9bdddf

    Solution Preview

    This is a somewhat classic Game Theory problem:

    A. Firstly, the concept of dominant strategies has been raised. A weakly dominant strategy is at least as good in most contingencies, and better in one contingency. A strictly dominant strategy is better in all contingencies. Lets look at the payoffs:

    Firm A appears to have a dominant strategy (advertise). Consider where Firm B decides to ...

    Solution Summary

    Nash equilibrium and dominant strategies are examined.