Similar firms in market that are strategically interdepend

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Suppose there are two similar firms in a market that are strategically interdependent. Firm A and Firm B. Firm A is a larger firm than firm B. Basically each needs to determine whether to “collude” or to “cheat” in an oligopolistic market. If Firm A colludes and Firm B colludes then Firm A earns 1,000 and Firm B earns 100. If Firm A colludes and Firm B cheats then Firm A earns 800 and Firm B earns 200. If Firm A cheats and Firm B colludes then Firm A earns 1,050 and Firm B earns 50. If both firms cheat, Firm A earns 500 and Firm B earns 20. Present the game in a “tabular” or matrix format. What outcome do you expect in this game? Fully explain. One way to proceed is to say what is Firm A’s best choice if Firm B colludes and what is Firm A’s best choice if Frim B cheats.

Reference no: EM131161394

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