Dominant Strategies Conceive of two competitors facing impor

Dominant Strategies. Conceive of two competitors facing important strategic decisions where the payoff to each decision depends upon the reactions of the competitor. Firm A can choose either row in the payoff matrix defined below, whereas firm B can choose either column. For firm A the choice is either “up” or “down;” for firm B the choice is either “left” or “right.” Notice that neither firm can unilaterally choose a given cell in the profit payoff matrix. The ultimate result of this one-shot, simultaneous-move game depends upon the choices made by both competitors. In this payoff matrix, strategic decisions made by firm A or firm B could signify decisions to offer a money-back guarantee, lower prices, offer free shipping, and so on. The first number in each cell is the profit payoff to firm A; the second number is the profit payoff to firm B.

                Firm B

Competitive Strategy

Left

Right

Firm A

Up

$5 million, $10 million

$7.5 million, $4 million

Down

$1 million, $3.5 million

$5 million, $5 million

Is there a dominant strategy for firm A? If so, what is it? Justify

Solution

Yes. The.dominant strategy for A is Up.If B chooses left a payoff of 5 million can be achieved. On the other hand if firm B chooses Right a payoff of 7.5 million can be achieved. No matter what firm B chooses the highest payoff results for firm A.