Target and Kmart are engaging into the following one-shot game: if Target advert
ID: 1097284 • Letter: T
Question
Target and Kmart are engaging into the following one-shot game: if Target advertises and Kmart does not, Target will make $20 million in profits and Kmart will make $6 million. If Kmart advertises and Target does not, Target will make $2 million and Kmart will make $6 million. If Target advertises and Kmart advertises, each firm earns $10 million. If neither firm advertises, Kmart will make $8 million and Target will make $4 million.
(a) Write the payoff matrix for the above game.
(b) Does Target have a dominant strategy?
(c) Does Kmart have a dominant strategy?
(d) What is the Nash equilibrium for the one-shot game
Explanation / Answer
Target and Kmart are engaging into the following one-shot game: if Target advertises and Kmart does not, Target will make $20 million in profits and Kmart will make $6 million. If Kmart advertises and Target does not, Target will make $2 million and Kmart will make $6 million. If Target advertises and Kmart advertises, each firm earns $10 million. If neither firm advertises, Kmart will make $8 million and Target will make $4 million.
(a) Write the payoff matrix for the above game.
(b) Does Target have a dominant strategy?
advertises is dominant strategy for the Target since the (10,20) is greater than the (2,4)
(c) Does Kmart have a dominant strategy?
There is no dominant strategy for the Kmart since the (10,6) is not >(6,8)
(d) What is Nash Equilibrium
Traget will end up adopting the advertise hence Kmart also goes with Advertise. Nash equilibrium is (Advertise, Advertise) or (10,10)
Kmart Advertises Not advertises Target Advertises 10,10 20,6 Not advertises 2,6 4,8Related Questions
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