Neither player has a dominant strategy so we need another approach to solve the game. Examine the payoff matrix once more. You will see that
Firm 1 would never charge the
High price. No matter what
Firm 2 chooses, there is always a strategy Firm 1 can choose that yields a higher payoff than High
For Firm 1 the High price is a dominated strategy, a strategy that will never be used. Knowing this will help us solve the game.
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