📚 Learning Guide
Dominant Strategies in Game Theory
medium

In a game theory scenario, if Firm A has a dominant strategy to always set a high price, it implies that Firm B will also choose to set a high price in response, regardless of its own dominant strategy.

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

True

B

False

C

It depends on the market conditions

D

Firm B will always lower its price

Understanding the Answer

Let's break down why this is correct

Answer

In game theory, a dominant strategy is a choice that is best for a player, no matter what the other players decide to do. If Firm A always chooses to set a high price because it maximizes its profits, this means it's the best option for them regardless of Firm B's actions. Firm B, seeing that Firm A has a high price, may also choose to set a high price to avoid losing customers or profits, even if Firm B might have a different dominant strategy. For example, if both firms are selling similar products, Firm B might think that matching Firm A’s high price will help them stay competitive in the market. This situation shows how one firm’s decision can influence another's, leading to a situation where both firms end up setting high prices.

Detailed Explanation

Firm B's choice depends on its own strategy. Other options are incorrect because This answer assumes Firm B must always match Firm A's price; This option suggests that market conditions decide Firm B's choice.

Key Concepts

Dominant Strategies
Game Theory
Oligopoly
Topic

Dominant Strategies in Game Theory

Difficulty

medium level question

Cognitive Level

understand

Ready to Master More Topics?

Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.