Let's ignore that part of the payoff matrix that tells us what happens when Firm 2 plays strategy S2. As Firm 1 ask yourself if you knew Firm 2 were going to play S1 what would you do?

   Looking at the payoff matrix to the right the answer should be fairly clear. If you knew Firm 2 were going to play S1 you could play S1 and receive 10 or play S2 to receive 12.

   Since these numbers represent profits 12 is clearly better than 10 so if Firm 1 knew that Firm 2 were going to play S1 it would play S2 earning profits of 12

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