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Since S2 is a dominant strategy for both firms, the outcome of the game is that both play this strategy and each earn payoffs of 7.
Upon reflection this solution should be troubling. It isn't hard to see that both would have been better off if they had played S1 and earned payoffs of 10 each, (reasurring ourselves that 10 is indeed larger than 7).
If this game is played only once we must stand by our prediction that both firms will choose their dominant strategy and earn payoffs of 7. If the game is repeated different outcomes can emerge, as we shall see later.
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