We are presented with growth strategies  Each firm is free to choose their own development strategy based on the profit potential of their choice

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We are presented with growth strategies  Each firm is free to choose their own development strategy based on the profit potential of their choice.

 

1. Does either firm have a dominant strategy?  (6 Points)  A dominant strategy is what you are going to do, knowing what they are going to do—this leads to the Nash Equilibrium  Explain how and what the dominant strategy is (hint, there does not need to be two dominant strategies). 
2. Is there a Nash equilibrium? Explain.  (6 Points)
3. What is the socially optimal solution?  (4 Points)
4. How can we arrive at this point (consider the Coase Solution).  Explain the necessary payoff.  (4 Points)

                                    Payoff Matrix

 

                                                                                       MoBike

 

                                                          Maintain Flexibility          Expand Aggressively 

 

                Maintain Flexibility          O:  Profit =$3                      O:  Profit = $1

                                                          M:  Profit =$3                      M:  Profit = $4    

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                Expand Aggressively      O:  Profit =$4                      O:  Profit = $2

                                                          M:  Profit =$1                       M:  Profit = $2