In a simple model of duopoly, two firms produce the same good, for which each firm charges either a low or a high price. Each firm wants to achieve the highest profits. The following matrix shows strategies and payoffs for both firms that must decide how to price.
Firm A High 1000, 1000 -200, 1200
Low 1200, -200 600,600
a. Does either firm have a dominant strategy, and if so, what is it?
b. What is the Nash equilibrium of this game?
c. Why would this be called a prisoner's dilemma game?
a. Yes, each of the firm has a dominant strategy of pricing Low. This is because the payoffs of pricing low are 1,200 and 600 which are higher than the ...
The solution goes into a fair amount of detail pertaining to the question being asked. The explanation is very good and yet concise and to the point. It is also very easy to follow along. Overall, a very good answer to the question being asked.