(Scenario: Payoff Matrix for Firms X and Y)Payoff Matrix for Firms X and Y.If firm X were to choose its dominant strategy,it would: Scenario: Payoff Matrix for Firms X and Y
The following payoff matrix depicts the profits for the only two firms in this oligopolistic industry.

Question

Quizplus · Accepted Answer

If firm X chooses a high price, it will earn a profit of $6 million. This is the dominant strategy for firm X as it yields the highest profit regardless of what firm Y does. Choosing a low price would result in a profit of $4 million if firm Y chooses a low price, but only a profit of $2 million if firm Y chooses a high price. Therefore, choosing a low price is not the rational choice for firm X.