Game Theory Critical Thinking
Given the following payoff matrix, ( a) indicate the best strategy for each firm. ( b) Why is the entry-deterrent threat by firm A to lower the price not credible to firm B? ( c) What could firm A do to make its threat credible without building excess capacity? (Refer to Tables Sheet)
P10(a):The strategies for firm A are low price and high price and the strategies for firm B are enter and don’t enter. What is the best (optimal) strategy for each firm?
P10(b) is asking whether firm A would use the low price as a threat if firm B enters?
Enter Don’t Enter
Firm A Low Price (3,-1) (3,1)
High Price (4,5) (6,3)