Two Auto Repairs Shops Compete Against Each Other in a Community

Essay

Two auto repairs shops compete against each other in a community. Both are considering an increase in prices charged for car repair services. Their interdependent alternatives are described by the payoff matrix.
(i) Determine whether each firm has a dominant strategy and, if it does, identify the strategy.
$$\begin{array} { | l | l | l | l | } \hline & & { \text { Firm 2 } } \\\hline & & \text { Increase } & \text { Not Increase } \\\hline { \text { Firm 1 } } & \text { Increase } & ( 9,16 ) & ( 8,15 ) \\\hline & \text { Not Increase } & ( 10,14 ) & ( 7,9 ) \\\hline\end{array}$$ (ii) Determine the optimal strategy for each firm.