Firms Alba Inc. and Bute Inc. are duopolists selling firecrackers. Each of them has the option to charge high prices or low prices. Alba was longer in the business and its cost structure allows for higher profits. Also, Alba enjoys a strong reputation among customers and is able to charge higher prices. For the strategy combination (high, high)the payoff is (200,120), where the first position refers to Alba, and the second to Bute. Similarly, for (high, low)the payoff is (100,150), for (low, high)the payoff is (50, 0), while for (low, low)is (50, 25).
a)What is the dominant strategy for each firm?
b)Find the Nash equilibrium.
c)Can Alba induce Bute to charge a high price by threatening to charge a low price otherwise?

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The Answer of Firms Alba Inc. and Bute Inc. are duopolists selling firecrackers. Each of them has the option to charge high prices or low prices. Alba was longer in the business and its cost structure allows for higher profits. Also, Alba enjoys a strong reputation among customers and is able to charge higher prices. For the strategy combination (high, high)the payoff is (200,120), where the first position refers to Alba, and the second to Bute. Similarly, for (high, low)the payoff is (100,150), for (low, high)the payoff is (50, 0), while for (low, low)is (50, 25).
a)What is the dominant strategy for each firm?
b)Find the Nash equilibrium.
c)Can Alba induce Bute to charge a high price by threatening to charge a low price otherwise?