1.   Firm 1 clearly doesn't have a dominant strategy. It will Enter if it belives Firm 2 will choose Don't Oppose but it will choose Don't Enter if it feels Firm 2 will Oppose. However, as we see to the left, Firm 2 has a dominant strategy. It isn't stricly dominant in that Firm 2 gets the same payoff no matter what it does if Firm 1 chooses not to enter, but in case Firm 1 enters it will be better off it if Opposes. Since Firm 2 will always play this strategy Firm 1 can safely ignore the right hand column of this game

   Once we realize that Firm 2 will always Oppose Firm 1's strategy becomes clear. It should choose not to enter so the game ends with Firm one choosing Don't Enter and Firm 2 choosing Oppose.

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