Suppose that Panasonic and Zenith are the only two firms that can produce a new
ID: 1202975 • Letter: S
Question
Suppose that Panasonic and Zenith are the only two firms that can produce a new type of 3D TV. The payoffs (in millions of dollars) from entering the product market are shown in the following payoff matrix: (a) If both firms move simultaneously, does either firm have a dominant strategy? Explain. (b) Is there a pure strategy Nash equilibrium given that both firms move simultaneously? What is Zenith's profit? (c) If Zenith has a head start over Panasonic, what is the pure strategy Nash equilibrium? What is Zenith's profit?Explanation / Answer
a) Zenith has a dominant strategy of entering on a large scale sinnce for given any choice of the rival Panasonic, this is the best action in terms of payoffs.
b) Only Zenith has dominant strategy and hence the game has a pure strategy Nash equilibrium where Zenith enters on a large scale while Panasonic charges a lower price after following Zenith (8, 28)
c) If Zenith starts first, it chooses Entering the market on a large sacle. Panasonic enters later and charge a lower price, Zenith earns a payoff of $8