The following game tree is for two martial arts companies Kirk's Kickboxing and Becky's Blackbelt) that are trying to determine if they should open a new store in Alaska.

What is the optimal strategy for Kirk's Kickboxing?
A) Kirk's Kickboxing should charge high prices when Becky's Blackbelt charges low prices
B) Kirk's Kickboxing should charge high prices when Becky's Blackbelt charges high prices
C) Kirk's Kickboxing should charge low prices when Becky's Blackbelt charges low prices
D) Kirk's Kickboxing should charge low prices when Becky's Blackbelt charges high prices
E) Both c and d

Question

The following game tree is for two martial arts companies Kirk's Kickboxing and Becky's Blackbelt) that are trying to determine if they should open a new store in Alaska.

What is the optimal strategy for Kirk's Kickboxing?
A) Kirk's Kickboxing should charge high prices when Becky's Blackbelt charges low prices 
B) Kirk's Kickboxing should charge high prices when Becky's Blackbelt charges high prices 
C) Kirk's Kickboxing should charge low prices when Becky's Blackbelt charges low prices 
D) Kirk's Kickboxing should charge low prices when Becky's Blackbelt charges high prices 
E) Both c and d

Quizplus · Accepted Answer

According to the game tree, if both companies charge low prices, both will earn $5 million. If both charge high prices, both will earn $2 million. However, if one company charges high prices while the other charges low prices, the former will earn $8 million while the latter earns $1 million. Therefore, the dominant strategy is for both companies to charge low prices, resulting in a win-win scenario. Thus, the best answer is E.

The Following Game Tree Is for Two Martial Arts Companies