Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 13, Problem 2TY
To determine
Find out the dominant strategy.
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Students have asked these similar questions
Consider the following normal form representation of the standard competition between firm A and
firm B. Each firm can choose either standard A or standard B. Their payoffs are given as follows:
Firm B
A
В
A
Firm A
В
1
1
3
1
(1) (10 points) What's Nash equilibrium (NE) in this game? If there are more than one, find them
all. But there is no NE, state that there is no NE.
(2) (10 points) If you find a NE (or multiple Nash equilibria), is it (or are they) Pareto efficient?
Use the information in the following table, which summarizes the payoffs (i.e., profit) to two firms that must decide between an average-quality and a high quality product, to answer the questions that follow:
Firm 2
Average Quality
High Quality
Firm 1
Average Quality
600, 600
400, 1100
High Quality
1100, 400
900, 900
a. What is each player's dominant strategy? Explain your reasoning.b. Referring to the table above, is this an example of a prisoner's dilemma game? Why or why not?c. Is there a Nash equilibrium? If so, what is it?
Suppose that Panasonic and LG are the only two firms that can produce a new type of
holographic TV. The payoffs (in millions of dollars) from entering this product market are shown in
the payoff matrix to the right.
If both firms move simultaneously, does either firm have a dominant strategy?
A. Both firms have a dominant strategy, which is to enter.
B. Neither firm has a dominant strategy.
C. Both firms have a dominant strategy, which is not to enter.
D. Panasonic has a dominant strategy, which is not to enter, but LG does not have a
dominant strategy.
E. Panasonic has a dominant strategy, which is to enter, but LG does not have a dominant
strategy.
C
Enter
LG
Do Not Enter
Enter
- 150
0
Panasonic
- 150
1500
Do Not Enter
1,500
0
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