The following information regarding the outcome of choices between two firms is provided as follows: Firm 2 Strategy A B A 20, 40 30, 16 B -20, 14 20, 20 Firm 1 Does firm 2 have a dominant strategy? What is the secure strategy for firm 2? What are the Nash equilibrium strategies for firms 1 and 2?
The following information regarding the outcome of choices between two firms is provided as follows:
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Firm 2
Firm 1
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- Does firm 2 have a dominant strategy?
- What is the secure strategy for firm 2?
- What are the Nash equilibrium strategies for firms 1 and 2?
Under dominance strategy or dominance one strategy adopted is better than the other strategy for one player irrespective of what the opponent player might play. A dominance strategy will be when one strategy adopted is strictly better than the other strategy. The strategy adopted is called weak strategy when both the strategies are equal.
Both strategies A and B are not dominant. Both do not have dominance over each other.
Secure equilibria are achieved when a strategy profile is both secure and a Nash equilibrium. Example secure strategy for firm 1 will be when it ensures that firm 2 tries to reduce firm 1’s payoff, then payoff of firm 2 will reduce as well and vice versa.
If firm 2 play A then firm will not try to reduce its pay offs because if it tries to reduce firm 2’s payoff then firm 1’s payoff will also reduce.
Therefor, A is the secure strategy for firm 2.
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