Question

In: Economics

Competitor Without Premium With Premium Time Warner Without Premium 65, 35 70, 30 With Premium 60,...

Competitor

Without Premium

With Premium

Time Warner

Without Premium

65, 35

70, 30

With Premium

60, 40

65, 35

What is the dominant strategy for each player and why?

What is the nash equilibrium?

Solutions

Expert Solution

If competitor chooses strategy ' without premium' then for Time Warner the strategy 'without premium' yields greater payoff than the strategy 'with premium' and hence Time Warner will choose the strategy ' without premium' . Similarly if the competitor chooses strategy 'with premium' then for Time warner the strategy 'without premium' yields greater payoff than the strategy 'with premium' and hence Time warner will choose the strategy 'without premium'. Clearly Time warner always chooses the strategy 'without premium' irrespective of competitor's strategy i.e Time Warner's strategy is not dependent on competitor's strategy and hence 'without premium' is dominant strategy for Time warner.

Similarly If Time warner chooses strategy ' without premium' then for competitor the strategy 'without premium' yields greater payoff than the strategy 'with premium' and hence competitor will choose the strategy ' without premium' . Similarly if the Time warner chooses strategy 'with premium' then for competitor the strategy 'without premium' yields greater payoff than the strategy 'with premium' and hence competitor will choose the strategy 'without premium'. Clearly Competitor always chooses the strategy 'without premium' irrespective of Time Warner's strategy i.e Competitor's strategy is not dependent on Time warner's strategy and hence 'without premium' is dominant strategy for Competitor.

So for both players ' without premium ' is dominant strategy. Since both players have dominant strategy , it means that they will always play/choose their dominant strategy. So in this case both players will always choose 'without premium'. Hence (without premium, without premium) = (65,35) is the nash equilibrium of the game.

Rahul Sunny answered 1 year ago
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