Two firms are planning their marketing strategies. Firm K can earn $25 million in profits from...
Two firms are planning their marketing strategies. Firm K can earn $25 million in profits from strategy S if firm L responds with strategy P, and $7.5 million in profit from S if L responds with strategy Q. Firm K can follow strategy T, which returns $22 million if firm L responds with strategy P and $5 million if L responds with strategy Q. Firm L’s potential profits would be $10 million and $18 million from strategy P, depending on whether firm K implements strategy S or T. Firm L’s profits from strategy Q would be $14 million or $12 million depending on whether firm K follows strategy S or T.
a. Construct the payoff table.
b. Does either firm have a dominant strategy? Dominated? Is there a stable equilibrium?
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