Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved
To the right we show on the payoffs to Firm 1. It now becomes immediately clear that S2 is a dominant strategy for Firm 1.
If Firm 1 plays S2 it will earn 14 rather than 9 if Firm 2 plays S1, and it will earn 8 instead of 4 if Firm 2 plays S2. No matter what Firm 2 does, Firm 1 earns a higher payoff by using strategy S2. We can confidently predict that if the game is played only once Firm 1 will play strategy S2, its dominant strategy.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved