his Question: 6 pts 12 of 20 (8 complete) This Test: 120 pts po Refer to the pay

Question

his Question: 6 pts 12 of 20 (8 complete) This Test: 120 pts po Refer to the payoff matrix at right for the profits (in S millions) of two firms (A and B) and two pricing strategies (high and low). Which of the following is the outcome of the dominant strategy without cooperation? O A. Firm A chooses the high price while firm B chooses the low price. O B. Both firm A and firm B choose the low O C. Both firm A and firm B choose the high price Firm B's Price High D. Firm Achooses the low price while firm B chooses the high pnce. $10 $5 High $5 $1 irm A's $1 $3 Low $10 $3 tudy

Explanation / Answer

B. Both Firm A and Firm B choose the low price.

Dominant strategy is a strategy for a player i.e. best response to all strategy profile of other player. If all players in a game have a dominant strategy then we say that Game has dominant strategy equilibrium.

Firm A has the dominant strategy of choosing low price because its payoff is higher when it choose low price as compared to when it chooses high price.

Firm B has the dominant strategy of choosing low price because its profit is higher when it chooses low price irrespective of the decision of Firm A.

So, both firms will choose low price.

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