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Oligopoly and payoff table

Two oligopoly firms are in the process of evaluating their marketing strategies. Firm 1 can generate estimated profits of $10 million from strategy A if the second firm reacts by strategy C, and $15 million from strategy A if the second firm reacts with strategy D. On the other hand, Firm 1 may follow strategy B which could return profits of $8 million or $9 million if Firm 2 reacts with strategy C or D respectively. The second firm's potential profits are $8 and $12 million from strategy C depending on whether Firm 1 undertakes strategy A or B, and $7 and $8 million form strategy D, depending on whether Firm 1 follows Strategy A or B.

a. Construct the payoff table for the above industry.
b. Does each firm have a dominant strategy? What is it?
c. Does the industry move toward an equilibrium position? If so, where?

Solution Preview

Let us construct the payoff matrix

Firm 2
Strategy C Strategy D

A 10, 8 ...

Solution Summary

Oligopoly and payoff table

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