Question

Assume that Nike and Adidas are the only sellers of athletic footwear in the United States. They are deciding how much to charge for similar shoes. The choices are “High” (H) and “Outrageously High” (OH). The payoff matrix is as follows Nike's dominant strategy is to

		Adidas
		H	OH
Nike	H OH	Adidas  $500,000 Nike $1.5 mill Adidas $550,000 Nike $1.7 mill	Adidas $1 mill Nike $1.7 mill Adidas $600,000 Nike $2.0 mill

A		charge high prices while Adidas’ dominant strategy is to charge high prices.
B		charge outrageously high prices while Adidas’ dominant strategy is to charge outrageously high prices.
C		charge high prices while Adidas’ does not have a dominant strategy.
D		charge outrageously high prices while Adidas’ dominant strategy is to charge high prices.

Answer 1

B

charge outrageously high prices while Adidas’ dominant strategy is to charge outrageously high prices.

(Given that Adidas choose H, Nike's best response is OH(1.7 mill).
Given that Adidas choose OH, Nike's best response is OH(2.0 mill).
So, Nike's dominant strategy is OH as it is always chosen by Nike.

Given that Nike choose H, Adidas's best response is OH(1 mill).
Given that Nike choose OH, Adidas's best response is OH(600,000).
​​​​​​​So, Adidas's dominant strategy is OH as it is always chosen by Adidas.)