Suppose a small town has only two firms (firm 1 and firm 2) selling the same product. Suppose that firm 1 and firm 2 are confronted with the decision to charge a high price (H) or a low price (L) for their product. The payoff matrix below displays the profits per day given the combination of prices for both firms. The first entry shows firm1’s profits while the second entry shows the second firm’s profits. The information displayed in the payoff matrix is known by both firms.

What is the dominant strategy of each firm?

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