Question

Assume Tianqi Distributors and Aseel Shipping are the only two firm moving containers from Asia to Europe. The payoff matrix below shows their annual profits in millions of euros that each firm could earn at different capacities. Aseel Shipping’s profit is on right hand side number in each cell and Tianqi Distributors’ profit is on the left-hand side of each cell. At their current capacities (with no expansion) Aseel Shipping is earning 40 million euros and Tianqi Distributors is earning 18 million euros.

Each firm is considering expanding their current capacity. Since Tianqi Distributors is a fairly small firm, it can consider only a Small Expansion. In contrast, Aseel Shipping has the ability to consider either a Small or Large expansion.

	Tianqi Distributors
Aseel Shipping		No Expansion	Small Expansion
	No Expansion	40           18	28        22
	Small Expansion	48          14	32       16
	Large Expansion	38           5	24        10

a) if both firms chose a small expansion what are the firms profits?

b) what will Tianqui distributers chose if:

Aseel Shipping chooses No Expansion? [1 mark]

Aseel Shipping chooses a Large Expansion? [1 mark]

c) Does Tianqi Distributors have a dominant strategy? If so, what is it? Explain your reasoning.

d) Is there a Nash Equilibrium? Yes, No? Explain your reasoning

Answer 1