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    Firms in a Oligopolistic industry

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    Consider two strategically dependent firms in an oligopolistic industry: Firm A and Firm B. Firm A knows that if it offers extended warranties on its products but Firm B does not, it will earn $6 million in profits, and Firm B will earn $2 million. Likewise, Firm B knows that if it offers extended warranties but Firm A does not, it will earn $ 6 million in profit, and Firm A will earn $2 million. The two firms know that if they both offer extended warranties on their products, each will earn $3 million in profits. Finally, the two firms know that if neither offers extended warranties, each will earn $5 million in profits.

    1. Create a pay off matrix that fits the situation faced by the two firms.
    2. What is the dominant strategy in this situation? Explain.

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    https://brainmass.com/economics/macroeconomics/firms-in-a-oligopolistic-industry-219274

    Solution Summary

    The solution answers the question below and goes into quite a bit of detail regarding oligopoly. The answer is ideal for students looking for a detailed analysis of the question asked below. An excellent response to the question being asked.

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