Table: Russia, Saudi Payoff TableSuppose that the oil market is dominated by two large firms, SaudiArabia and Russia. Both Saudi Arabia and Russia have twochoices or strategies: cooperate by cutting back production orcheat by increasing production. The payoff table below shows thepotential revenues associated with each firm's strategies. Forinstance, if Saudi Arabia cheats and Russia cooperates then thepayoff to Saudi Arabia is $1,000 and the payoff to Russia is $400. (Table: Russia, Saudi Payoff Table) Refer to the table. Thedominant strategies are:

Question

Table: Russia, Saudi Payoff TableSuppose that the oil market is dominated by two large firms, SaudiArabia and Russia. Both Saudi Arabia and Russia have twochoices or strategies: cooperate by cutting back production orcheat by increasing production. The payoff table below shows thepotential revenues associated with each firm's strategies. Forinstance, if Saudi Arabia cheats and Russia cooperates then thepayoff to Saudi Arabia is $1,000 and the payoff to Russia is $400.  (Table: Russia, Saudi Payoff Table) Refer to the table. Thedominant strategies are:

Quizplus · Accepted Answer

The dominant strategy for both firms is to cheat and increase production, since in any scenario (cooperate or cheat), they earn more revenue by increasing production. As such, both firms will likely end up cheating, resulting in lower overall revenue in the market.

Table: Russia, Saudi Payoff TableSuppose That the Oil Market Is