This prisoner\'s dilemma game shows the payoffs associated with two firms, A and

Question

This prisoner's dilemma game shows the payoffs associated with two firms, A and B, in an oligopoly and their choices to either collude with one another or not. FIRMA Collude Produce 20m Compete Produce 35m A: $200m profits A: $300m profits Collude Produce 30m:$300m profits B:$170m profits FIRM B A: $50m profits A: $100m profits Compete Produce 50m B: $400m profits B:$200m profits Given the payoffs in the matrix shown, Firm A O has a dominant strategy to collude. O has a dominant strategy to compete. ?does not have a dominant strategy. ?None of these statements is true.

Explanation / Answer

When Firm B chooses to collude Firm A will choose to compete since that fetches more payoff than colluding .

When Firm B chooses to compete Firm A will also choose to compete since that fetches more payoff again .

Hence whatever be the strategy of B , A will always choose to compete . Answer : has a dominant strategy to compete .

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