A Small Regional Airline Is Considering Offering Service to the Big

question 72

Essay

A small regional airline is considering offering service to the Big City market. A large carrier already provides service to Big City. The small carrier's two strategies are: Enter Market or Do Not Enter. The large carrier's strategies are: Price Dump or Maximize Profits in the Short Run. By price dumping in the Big City market, the large carrier can force the small carrier out of business and make monopoly profits in the long-run. The long-run pay-offs are presented in the pay-off matrix below.
Does either player have a dominant strategy? Does the game have any Nash equilibria? What is the maximin strategy of each player in the game?

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Definitions:

Strict Liability

A legal doctrine that holds individuals or entities liable for damages and harm caused by their actions, regardless of fault or intention.

Comment (m)

Written or spoken remarks expressing an opinion or reaction to something.

Section 402A

Refers to a specific provision within the Restatement (Second) of Torts that deals with the liability of manufacturers and sellers for harm caused by defective products.

Fitness for a Particular Purpose

A warranty that a product will meet the specific needs or criteria outlined by the buyer at the time of purchase.