-Refer to Figure 12.3.The decision tree shows the payoffs for two firms based on the strategies they choose.If they agree to collude and hold prices at $10,and both stand by the agreement,each will earn profits of $5 million.If one firm cheats and the other does not,the firm that cheats will earn profits of $8 million and the other firm will have losses of $2 million.If they both cheat and cut prices,they will each earn profits of only $2 million.In this game,the dominant strategy for B is to

Question

Quizplus · Accepted Answer

The dominant strategy is the best strategy for a player regardless of the strategies chosen by other players. In this scenario, regardless of whether Firm A cheats or stands by the agreement, Firm B earns more by cheating ($8 million if A stands by the agreement, $2 million if A cheats) than by standing by the agreement ($5 million if A stands by the agreement, -$2 million if A cheats).