Best Buy (B) and Circuit City (C) are competitors in the consumer electronics market. Both have relatively large margins on plasma TV's. Essentially, they have driven up the price of such TV's well above marginal costs because consumers of these TVs tend to be wealthy, and thus tend to have less time, and thus tend to be less price sensitive. However, some consumers will shop around and thus each Firm could steal business from the other by cutting prices.
Hold N Match Cut prices
Best Buy Hold and match prices B=8, C=8 B=4, C=10
Best Buy Cut prices B=10, C=4 B=6, C=6
How do I calculate all dominant strategies and calculate all Nash equilibria.
If the firms introduce a price matching policy. How do I calculate the new payoff matrix and repeat (a) and (b).
First let me define what dominant strategy (hereafter ds) and nash equilibrium (herafter ne).
DS is a strategy that is better for the player regardless of what the opponent's option is.
NE is an outcome (an outcome is the result of both players each playing one strategy) that no player can achieve a better payoff by ...