In the US Airline Industry, 1. Indicate a game theory and a major decision the industry...

In the US Airline Industry,

1. Indicate a game theory and a major decision the industry might make based on that theory.

2. Use a decision tree or payoff matrix to show players, strategy, and payoff (you can you hypothetical numbers).

3. Apply the Nash equilibrium and identify a dominant strategy involved, if one is in play.

Expert Solution

(1) Consider a game played by two airlines A and B, deciding whether or not to invest in coal efficiency technology. Both move simultaneously and have to decide between investing and not investing. The payoffs (in $Million) are as follows

(2) From the payoff matrix we can see that:

When B chooses to invest A is better off by not investing (5>4) and When B chooses to not invest A is better off by not investing (3>2)

When A chooses to invest B is better off by not investing (5>4) and When A chooses to not invest B is better off by not investing (3>2)

Thus, the nash equilibrium of the game is for both the players A and B to not invest and earn a payoff of $ 3 million each

(3) Since both the players choose not to invest, irrespective of the strategy of the other player, The dominant strategy for both the players is not investing the coal efficiency technology.

Rahul Sunny answered 8 months ago

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