Suppose that Ford and GM are considering. entering the market for automobiles ba
ID: 1211620 • Letter: S
Question
Suppose that Ford and GM are considering. entering the market for automobiles based on hydrogen fuel cell (new power technology) and there are no other companies that can compete with them If Ford is the only one to develop such a car, it would earn $600million in annual profits. If GM is the only one to enter that market. It would earn $500 million in annual profits. In the case where both companies decide to enter. GM's annual profit will be $50 million while Ford would have to face losses amounting to $200 million annually. Naturally. If a firm stays out of the fuel cell car market, it earns nothing Present the situation described above as a game by filling out the matrix below n each cell, write the two companies payoffs, listing Ford's payoffs first. Does any of the two firms have a dominant strategy If so, state what they are. Ford_GM_What is the most likely outcome of the game presented above? Explain why.Explanation / Answer
(b) A dominant strategy is the strategy chosen by a firm irrespective of the other firm's strategy.
For Ford, its best strategy is to Enter whether or not GM enters the market, since payoff is higher (50 > 0, 600 > 0).
So Ford's dominant strategy is: ENTER.
For GM, its best strategy is not to enter whether or not GM enters the market, since payoff is higher.
So GM's dominant strategy: DO NOT ENTER
(c) Most like result is: Ford Enters, GM Does Not Enter.
When GM Enters, Ford's best strategy is to enter as payoff is higher (50 > 0).
When GM does not enter, Ford's best strategy is to enter as payoff is higher (600 > 0).
When Ford Enters, GM's best strategy is Not to enter as payoff is higher (0 > - 200).
When Ford does not enter, GM's best strategy is to enter as payoff is higher (600 > 0).
So, optimal strategy is (600, 0).
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