This question is based on a simultaneous game where you are required to find the
dominant strategy equilibrium. To solve it out we need to first form the payoff matrix for
the game.
There are two players: Ford and Chevrolet.
Each has 3 actions: either charge $4000, or charge $8000, or charge $12000.
The payoffs are the profits for each firm.
Assuming the first item in each cell is Chevrolet's profit and the second one is Ford's we
can form the following payoff matrix:
Ford
$4000 $8000 $12000
$4000 (8,8) (12,6) (14,2)
Chevrolet $8000 (6,12) (10,10) (12,6)
$12000 (2,14) (6,12) (7,7)
Now suppose Chevrolet thinks that Ford is going to charge $4000. In that case if they
charge $4000, their profit is 8 million, if they charge $8000 their profit is 6 million, and if
they charge $12000 their profit is 2 million. The best option in such a case is to charge
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 Spring '11
 SMITH
 Management, Game Theory, Chevrolet

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