Two restaurants, in a small town, compete in the market for pizza. Each restaurant must decide whether to advertise or not. The potential monthly profits for these firms are shown below (in thousands of dollars).
FIGURE 10-5

-Referring to Figure 10-5, what can be said about dominant strategies?

Question

Two restaurants, in a small town, compete in the market for pizza. Each restaurant must decide whether to advertise or not. The potential monthly profits for these firms are shown below (in thousands of dollars).
FIGURE 10-5
 
-Referring to Figure 10-5, what can be said about dominant strategies?

Quizplus · Accepted Answer

Both restaurants have a dominant strategy. Restaurant A's dominant strategy is to advertise (resulting in a payoff of $20,000 regardless of what Restaurant B chooses), and Restaurant B's dominant strategy is to advertise (resulting in a payoff of $16,000 regardless of what Restaurant A chooses). Therefore, both restaurants will advertise and earn their dominant strategy payoffs.

Two Restaurants, in a Small Town, Compete in the Market