Q5) B

i)

For Firm A,

Dominant strategy of A would be to advertise. Because if B means to advertise then Firm A should
also advertise since payoff for advertising (4,3) is better than (2,5) for not advertising. If Firm B
chooses to not advertise than Firm A should still advertise because the payoff (5,1) for advertising is
better and payoff (3,2) for not advertising.

For Firm B,

Dominant strategy of B would also be to advertise. Because if A means to advertise than Firm B
should also advertise since payoff for advertising (4,3) is better than (5,1) for not advertising. If Firm
A chooses to not advertise than Firm B should advertise since the payoff (2,5) for advertising is
better than (3,2) for not advertising.

ii)

Since the dominant strategy for both Firms A and B is to advertise. The equilibrium would be (4,3).
Hence, Firm A would be the bigger player.

iii)

According to game theory, the dominant strategy is the optimum action for an individual regardless
of how other players respond.

A Nash equilibrium is the optimal game scenario in which both players have made optimal plays and
are now evaluating their opponents' movements.

In game theory, the prisoner's dilemma is a well-known example of how the Nash equilibrium works.

The dominant strategy might also be the Nash equilibrium, despite the fact that they are separate
concepts.

Nash equilibrium can exist when all individuals or groups cooperate or when none of them
collaborate.