Two oligopolistic aluminium manufacturers are engaged in bitter competition with one another. Both firms, Big Aluminium Giant (BAG) and Little Aluminium Giant (LAG), are deciding whether to expand capacity or not. The table below shows payoffs for the firms under various scenarios. The first number in each cell is the payoff of LAG. Suppose the game is played once and each firm has to make its decision simultaneously. Does BAG have a dominant strategy? Explain clearly. Does LAG have a dominant strategy? Explain clearly. Big Aluminium Giant (BAG) Don't Expand Expand 3, 4 4, 2 Little Aluminium Giant Don't Expand 2, 3 Expand 1, 1
Two oligopolistic aluminium manufacturers are engaged in bitter competition with one another. Both firms, Big Aluminium Giant (BAG) and Little Aluminium Giant (LAG), are deciding whether to expand capacity or not. The table below shows payoffs for the firms under various scenarios. The first number in each cell is the payoff of LAG. Suppose the game is played once and each firm has to make its decision simultaneously. Does BAG have a dominant strategy? Explain clearly. Does LAG have a dominant strategy? Explain clearly. Big Aluminium Giant (BAG) Don't Expand Expand 3, 4 4, 2 Little Aluminium Giant Don't Expand 2, 3 Expand 1, 1
Chapter8: Monopoly
Section: Chapter Questions
Problem 15SQ
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