Two computer firms, A and B, are planning to market network systems for office i

Question

Two computer firms, A and B, are planning to market network systems for office information management. Each firm can a fast, high quality system (H), or a slower, low quality system (L). Market research Indicates that the resulting profits to each firm for the alternative strategies are given by the following payoff matrix: If both firms make their decisions at the same time and follow maximum (low risk) strategies, what will the outcome be? Suppose both firms try to maximize profits, but firm A has a head start in planning, and can commit first. Now what will the outcome be? What will the outcome be if Firm B has the head start in planning and can commit first. Does any firm have a "dominant Strategy'?

Explanation / Answer

With a maimin strategy A therefore choose H. if firm B selects L, the worst payoff would occur if firm A choose L: the poayoff would be 20. If firm B chooses H, the worst payoff 30 would occur if firm A chooses L. with a maximin strategy B therefore choose H. so under maximin strategy both A and B produce a high quality system.

b.

if firm A can not commit first, it would selects H since it knows that firm B will rationally choose L, since L gives a higher payoff to B. this gives firm A a payoff of 50. If firm B can commit first, it will choose H because it knows that firm A will rationally choose L, since L gives a higher payoff to A. this gives firm B a payoff of 60.

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