In the game depicted below,firms 1 and 2 must independently decide whether to charge high or low prices. $\begin{array}{c}
\text { Firm 2}\
\text { Firm 1}
\begin{array}{|l|l|l|}
\hline &\text { High Price } & \text { Low Price }\
\hline & & \
\text { High Price } & (10,10) & (5,-5) \
\hline & & \
\text { Low Price } & (-5,5) & (0,0)\
\hline
\end{array}\end{array}$ A dominant strategy for firm 1 is:
A) high price.
B) low price.
C) different from firm 1's secure strategy.
D) low price and different from firm 1's secure strategy.

Question

In the game depicted below,firms 1 and 2 must independently decide whether to charge high or low prices. $\begin{array}{c}
\text { Firm 2}\
\text { Firm 1}
\begin{array}{|l|l|l|} 
\hline &\text { High Price } & \text { Low Price }\
\hline & & \
\text { High Price } & (10,10) & (5,-5) \
\hline & & \
\text { Low Price } & (-5,5) & (0,0)\
\hline
\end{array}\end{array}$ A dominant strategy for firm 1 is:
A) high price.
B) low price.
C) different from firm 1's secure strategy.
D) low price and different from firm 1's secure strategy.

Quizplus · Accepted Answer

A dominant strategy is one that results in the highest payoff for a player, regardless of what the other player does. For Firm 1, choosing a high price yields a payoff of 10 if Firm 2 also chooses high, and 5 if Firm 2 chooses low, which are both higher than the payoffs from choosing a low price (-5 if Firm 2 chooses high, 0 if Firm 2 chooses low). Therefore, the dominant strategy for Firm 1 is to charge a high price.

In the Game Depicted Below,firms 1 and 2 Must Independently