In the game depicted below, firms 1 and 2 must independently decide whether to charge high or low prices. A dominant strategy for firm 1 is:
A) high price.
B) low price.
C) different from firm 1's secure strategy.
D) low price and different from firm 1's secure strategy.

Question

In the game depicted below, firms 1 and 2 must independently decide whether to charge high or low prices.  A dominant strategy for firm 1 is:
A) high price. 
B) low price. 
C) different from firm 1's secure strategy. 
D) low price and different from firm 1's secure strategy.

Quizplus · Accepted Answer

Firm 1's dominant strategy is to charge a high price. Regardless of what firm 2 does, firm 1 will always earn a higher profit by charging a high price. If firm 2 also charges a high price, firm 1 will earn 1 unit of profit. If firm 2 charges a low price, firm 1 will earn 2 units of profit. On the other hand, if firm 1 charges a low price and firm 2 charges a high price, firm 1 will earn only 0.5 units of profit. Therefore, firm 1 has a dominant strategy to charge a high price.

In the Game Depicted Below, Firms 1 and 2 Must