Question

In a market with two firms, a firm that has a dominant strategy will do which of the following?

(A) Maintain that strategy independent of the strategies chosen by its competitor.
(B) Adjust its strategies based on the strategies chosen by its competitor.
(C) Make the first move, and wait to see whether its competitor responds to the move.
(D) Keep its competitor guessing about its next move.

Answer 1

In a market with two firms, a firm that has a dominant strategy will maintain that strategy independent of the strategies chosen by its competitor. The Option A is correct.

What does dominant strategy mean?

In economics, the solution of dominant strategy is in Nash equilibrium, although the underlying principles of a dominant strategy render Nash analysis somewhat superfluous. Cost and benefit incentives do not change based on other actors.

In dominant strategy, each player's best strategy are unaffected by the actions of other players and this renders the critical assumption of the Nash equilibrium that each actor knows the optimal strategy of the other players.

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