a. Determine the (Nash) equilibrium (or equilibria) of the game. Does
the superpower competition constitute a prisoner’s dilemma? Explain.
b. Does your answer to part (a) help explain the “cooling” of the arms
race between the United States and the former Soviet Union over the
last 20 years? Explain.432 Chapter 10 Game Theory and Competitive StrategySuperpower 2
Build Stop
Superpower 1
Build 3, 4 5, 3
Stop 2, 7 6, 8- The following payoff table depicts service competition between two hospitals
in a southeastern city. (Each payoff represents profit in millions of dollars.)
a. Does either hospital have a dominant strategy (or any dominated
strategy)? Assuming they determine their strategies independently of
one another, what are the hospitals’ respective (Nash) equilibrium
strategies? Explain briefly.
b. Suppose instead that the hospitals merge and, therefore, coordinate
their service decisions. Which actions should they take? Explain briefly.
c. What general economic reasons might there be for a hospital merger
to generate an increase in total profit? Would the hospitals’ customers
be likely to benefit from the merger? Under what circumstances?
Explain carefully.- Consider the following zero-sum game.
Hospital B’s Service
Basic All-Purpose Speciality
Basic 5, 7 5, 4 12, 6
Hospital A’s All-Purpose 4, 5 8, 7 7, 4
Services
Speciality 6, 10 3, 12 3, 3Player C
C1 C2 C3
R1 13 12 10
Player R R2 14 6 8
R3 316 7c10GameTheoryandCompetitiveStrategy.qxd 9/29/11 1:33 PM Page 432