Part 1Soapy Inc. and Suddies Inc., the only laundry detergent producers, collude and agree to share the market equally. If neither firm cheats, each makes $1 million profit. If one firm cheats, it makes $1.5 million, while the complier incurs a loss of $0.5 million. If both cheat, they break even. Neither firm can monitor the other's actions.What are the strategies in this game? Construct the payoff matrix for this game.If the game is played only once what is the equilibrium? Is it a dominant-strategy equilibrium? Part 1The strategies in this game are _______. A. break even or make a profit B. cheat on the agreement or comply with the agreement C. Nash strategies or dominant strategies D. make a profit or incur a loss

Question

Part 1Soapy Inc. and Suddies​ Inc., the only laundry detergent​ producers, collude and agree to share the market equally. If neither firm​ cheats, each makes​ $1 million profit. If one firm​ cheats, it makes​ $1.5 million, while the complier incurs a loss of​ $0.5 million. If both​ cheat, they break even. Neither firm can monitor the​ other's actions.What are the strategies in this​ game? Construct the payoff matrix for this game.If the game is played only once what is the​ equilibrium? Is it a​ dominant-strategy equilibrium? Part 1The strategies in this game are​ _______. A. break even or make a profit B. cheat on the agreement or comply with the agreement C. Nash strategies or dominant strategies D. make a profit or incur a loss

BlackTom AI · Accepted Answer

Question restatement: The scenario involves two firms, Soapy Inc. and Suddies Inc., that can either cheat on a collusive agreement or comply with it. If neither cheats, each earns $1 million. If one cheats, the cheater earns $1.5 million and the compliant firm loses $0.5 million. If both cheat, they both break even. Monitoring is imperfect, so actions are not observable before decisions.

Option A: break even or make a profit. This option focuses on outcomes (break-even vs profit) rather than the strategic choices available to each firm. It does not capture the distinct actions (cheat vs comply) that firms can freely choose, so it is an incomplete description of the strategic space.

Option B: cheat on the agreement or comply with the agreement. This option correctly identifies the two strategic actions each firm can take in this game: cheat or comply. Since they cannot monitor, the strategic choices are about whether to violate the collusive agreement or adhere to it, which is precisely what defines the strategy set.

Option C: Nash strategies or dominant strategies. This wording confuses solution concepts with what the players can choose. Nash strategies and dominant strategies are solution concepts in game theory (how players decide given others’ choices or given a dominant option), not the actual strategic actions available to players in this game. The question asks for the strategies in this game, i.e., the actions, not the analytical categories used to analyze them.

Option D: make a profit or incur a loss. This option describes outcomes (profit vs loss) rather than the strategic actions or the choices available to the firms. It ignores the binary choice each firm has regarding compliance with or violation of the agreement, and it conflates results with actions.

In this context, the only option that accurately enumerates the strategic choices available to each firm in the described game is Option B. The other options either describe outcomes or mischaracterize what constitutes the strategic decision in this setting, rather than the actions (cheat or comply) that define the strategy set for both players.

Homework:ch15_homework

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