Two firms at the St. Louis airport have franchises to carry passengers to and from hotels in downtown St. Louis. These two firms, Metro Limo and Urban Limo, operate nine passenger vans. These duopolists cannot compete with price, but they can compete through advertising. Their payoff matrix is below:
a. Does each firm have a dominant strategy? If so, explain and what that strategy is.
b. What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the payoff matrix.

Question

Two firms at the St. Louis airport have franchises to carry passengers to and from hotels in downtown St. Louis. These two firms, Metro Limo and Urban Limo, operate nine passenger vans. These duopolists cannot compete with price, but they can compete through advertising. Their payoff matrix is below:  
a. Does each firm have a dominant strategy? If so, explain and what that strategy is.
b. What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the payoff matrix.

Quizplus · Accepted Answer

The Answer of Two firms at the St. Louis airport have franchises to carry passengers to and from hotels in downtown St. Louis. These two firms, Metro Limo and Urban Limo, operate nine passenger vans. These duopolists cannot compete with price, but they can compete through advertising. Their payoff matrix is below:  
a. Does each firm have a dominant strategy? If so, explain and what that strategy is.
b. What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the payoff matrix.

Two Firms at the St