The payoffs to each firm (in billions of dollars) and an extensive form game bet

Question

The payoffs to each firm (in billions of dollars) and an extensive form game between BP and Shell are shown in the figure. BP has 20 percent of the U.S. gasoline market share and Shell has 16 percent market share. BP and Shell are attempting to determine whether to send geologists to explore Oil Track 20. Is there a dominant strategy for Shell? What is the dominant strategy, if any, for Shell? What is the Nash equilibrium or equilibria in this game. Use the above information to advise BP on whether they should pursue a merger with Shell.

Explanation / Answer

A)

Here there are dominant strategy of shell company. That is to explore oil track 20, it is bacuse Shells payouts are always larger with the strategy for no exploration.

B)

Here the Nash equilibrium is found that both BP and Shell Explore the oil track 20.

C)

Here both shell and BP decided to merge each other , then the merged firm will get higher profit,that is $6+$2=$8. Then their combined nash equilibrium is found that ($3=$2+$1)

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