Firm A is considering entering a market in which firm B is a monopolist. Firm B must decide how to respond to this challenge. If firm A decides to enter, firm B can either adopt an aggressive pricing strategy or a passive pricing strategy. If firm B adopts an aggressive pricing strategy, firm A will lose $5 million, although firm B will only earn $1 million. If firm B adopts a passive pricing strategy, firm A will earn $3 million and firm B will earn $7 million. Finally, if firm A decides to stay out of the market, firm B will earn $14 million regardless of its pricing strategy. Firm A:
A) Has a weakly dominant strategy.
B) Does not have a dominant strategy.
C) Has a strictly dominant strategy.
D) Has a iterated weakly dominant strategy.
E) None of the above

Question

Quizplus · Accepted Answer

Firm A does not have a dominant strategy because its best response depends on the strategy chosen by Firm B. If Firm B chooses an aggressive pricing strategy, it's better for Firm A to stay out. If Firm B chooses a passive strategy, it's better for Firm A to enter.

Firm a Is Considering Entering a Market in Which Firm