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# Payoff matrix

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1. Mitchell Electronics produces a home video game that is very popular with children. Mitchell's managers believe that Wright Televideo Company is considering entering the market with a competing product. Mitchell must decide whether to set a high price to accomodate entry or a low, entry detering price. The payoff matrix below shows the profit outcome for each company under the alternative price and entry strategies. Mitchell's profit is entered before the comma, Wright's is after the comma.

(see chart in attached file)

a. Does Mitchell have a dominant strategy? Does Wright have a dominant strategy? Explain both cases.

b. Mitchell's managers have vaguely suggested a willingness to lower price in order to deter entry. Is this threat credible in light of the payoff matrix above?

c. If the threat is not credible, what changes in the payoff matrix would be needed to make the threat credible? What business strategies could Mitchell use to alter the payoffs so the threat is credible?

https://brainmass.com/statistics/hypothesis-testing/payoff-matrix-91398

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## Given a payoff matrix determine whether each firm has dominant strategy.

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"left" or "right". Notice that neither firm can unilaterally choose a given cell in the profit payoff matrix. The ultimate result of this one-shot
simultaneous-move game depends upon the choices made by both competitors. In this payoff matrix, strategic decisions made by firm A or firm B could signify decisions to offer a money-back
guarantee, lower prices, free shipping, and so on. The first number in each cell is the profit payoff to firm A; the second number is the profit payoff to firm B

Firm B
Firm A Competitive Strategy Left Right

Up \$ 75,000; \$ 10,000 \$ 50,000; \$ 40,000

Down \$ 25,000; \$ 25,000 \$ 80,000; \$ 30,000

A. Is there a dominant strategy for firm A? If so, what is it?

B. Is there a dominant strategy for firm B? If so, what is it?

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