To the right is a simple payoff matrix for a two player two strategy game. F1 is Firm 1 and F2 is Firm 2. Each firm has two possible strategies or actions. Firm 1 can either engage in strategy 1 (S1) or strategy 2 (S2). Firm 2 also has two strategies labeled S1 and S2.

   Strategies can be anything and they need not be the same for the two firms. For example Firm 1's strategy 1, S1, could be to raise prices while Firm 2's S1 could be to increase advertising expenditure.

   In the empty boxes we will list the payoffs to each player in each situation. For example, in the upper lefthand box will go the payoffs to the two firms when they both engage in their strategy ones.

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