A Question per day - Day 16


1. Two firms must each choose whether to follow strategy A, B or C. This choice must be made simultaneously and occurs in the context of a one period game. Their payoffs coincide with the profits obtained from each strategy and are given as follows:

  • If firm 1 chooses A and firm 2 chooses A, then 1 receives $21 and 2 receives $18
  • If firm 1 chooses A and firm 2 chooses B, then 1 receives $30 and 2 receives $16
  • If firm 1 chooses A and firm 2 chooses C, then 1 receives $50 and 2 receives $15
  • If firm 1 chooses B and firm 2 chooses A, then 1 receives $20 and 2 receives $10
  • If firm 1 chooses B and firm 2 chooses B, then 1 receives $25 and 2 receives $15
  • If firm 1 chooses B and firm 2 chooses C, then 1 receives $30 and 2 receives $8
  • If firm 1 chooses C and firm 2 chooses A, then 1 receives $15 and 2 receives $2
  • If firm 1 chooses C and firm 2 chooses B, then 1 receives $12 and 2 receives $3
  • If firm 1 chooses C and firm 2 chooses C, then 1 receives $15 and 2 receives $4

    a. Write this as a normal form game.
    b. What outcome(s) do you predict will arise here? Explain.
    c. Do these players face the "prisoners' dilemma?" Explain.