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    Game Theory

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    Suppose that Wal-Mart and Target are independently deciding whether to stick with bar codes or switch to RFID tags to monitor the flow of products. Because many suppliers sell to both Wal-Mart and Target, it is much less costly for suppliers to use one system or the other rather than to use both. The following payoff matrix shows the profits per year for each company resulting from the interaction of their strategies.

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    Solution Preview

    1. In game theory, dominance (also called strategic dominance) occurs when one strategy is better than another strategy for one player, no matter how that player's opponents may play. If Wal-Mart selects bar code it could earn 4B or 1B. If Wal-Mart selects RFID, then it can earn 3B or 2B. Wal-Mart has no dominant strategy based on these payoffs. It ...

    Solution Summary

    The solution is detailed and explains the concepts of Game Theory clearly in the given economics question.