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Discussing the Dominant Strategy

Suppose two competitors, Coa, Inc., and Han, Inc., are locked in a bitter pricing struggle in the aluminum industry. In the limit pricing payoff matrix, Coa can choose a given row of outcomes by offering a limit price ("up") or monopoly price ("down"). Han can choose a given column of outcomes by choosing to offer a limit price ("left") or monopoly 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 attachment for the chart.

a. Is there a dominant strategy equilibrium in this problem?
b. If there is a dominant strategy equilibrium, what is it?
c. Is there a Nash equilibrium in this problem?
d. If there is a Nash equilibrium, what is it?


Solution Preview

Your questions a and b are the same. I am assuming that in (a) you are asking if there is a dominant strategy or not and in (b) you are asking if a dominant strategy equilibrium exists. ...

Solution Summary

This solution goes into a great amount of detail related to the economics question being asked. The solution is very easy to follow along and can be easily understood by anyone with a basic understanding of the concepts. This is all completed in about 135 words.