Before we consider dominant strategies, let's look at how we evaluate a simple payoff matrix. The matrix to the right illustrates a simple game in which the payoffs are in profit. In such a game firms will try to earn the highest profit they can, so larger payoffs are better.

First, look at the matrix from the standpoint of one of the players. It doesn't matter which, but take one players point of view. Even for a a fairly simple game, trying to understand how the players will behave can be a bit overwhelming at first.

Start by looking at the game from Firm 1's perspective, and only look at a portion of the game at a time. For example, as yourself if you were Firm 1 and somehow you knew that Firm 2 were going to play S1 what would you do?

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved