Question

4. Suppose two airlines A and B must decide whether to discount a flight from Newark to LA. If both firms don't discount the flight each firm carns a profit of 20. If both firms discount the flight, each firm carns a profit of 10. If firm A discounts the flight while firm B doesn't, firm A earns a profit of 100 while firm B has a loss of 20. If fym B discounts the flight while firm A doesn't, firm B earns a profit of 100 while firm A has loss of 20. (a) Use the information to construct a payoff matrix for firms A and B. (b) Does firm A have a dominant strategy? (c) Does firm B have a dominant strategy? (d) What is the Nash Equilibrium for this game? Explain your answers.

Answer 1

4 al B Discount Dan't Discount A Discent 100,-20 10,10 20, 20 b ) is discount ay 107 - 20 and Don't discent -20,100 A has strictly dominant sharlegy which 100) 20, dominant strategy which 107-20 and & Nash equilibrium of this is Discount, Discount) game and 의 B has a is discount strictly 100720 as (10,10) off pay