Question

Suppose two local suppliers are seeking to win the right to upgrade the communications capability of the internal “intranets” that link a number of customers with their suppliers. The system quality decision facing each competitor, and potential profit payoffs, are illustrated in the table. The first number listed in each cell is the profit earned by U.S. Equipment Supply; the second number indicates the profit earned by Business Systems, Inc. For example, if both competitors, U.S. Equipment Supply and Business Systems, Inc., pursue a high-quality strategy, U.S. Equipment Supply will earn $25,000 and Business Systems, Inc., will earn $50,000. If U.S. Equipment Supply pursues a high-quality strategy while Business Systems, Inc., offers low-quality goods and services, U.S. Equipment Supply will earn $40,000; Business Systems, Inc., will earn $22,000. If U.S. Equipment Supply offers low-quality goods while Business Systems, Inc., offers high-quality goods, U.S. Equipment Supply will suffer a net loss of $25,000, and Business Systems, Inc., will earn $20,000. Finally, if U.S. Equipment Supply offers low-quality goods while Business Systems, Inc., offers low-quality goods, both U.S. Equipment Supply and Business Systems, Inc., will earn $25,000.


A. Does U.S. Equipment Supply and/or Business Systems, Inc., have a dominant strategy? If so, what is it?
B. Does U.S. Equipment Supply and/or Business Systems, Inc., have a secure strategy? If so, what is it?
C. What is the Nash equilibrium concept, and why is it useful? What is the Nash equilibrium for thisproblem?


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  • CreatedFebruary 13, 2015
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