Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price: Big Brow High Price Low PriceLittle Kona Enter $2 million, $3 million - $2 million, $1 million Don't Enter $0, $8 million $0,$3 millionBoth Little Kona and Big Brew have a dominant strategy in this game. a. Trueb. False

Question

Luca Castro

Business

21 June, 20:41

Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price: Big Brow High Price Low PriceLittle Kona Enter $2 million, $3 million - $2 million, $1 million Don't Enter $0, $8 million $0,$3 millionBoth Little Kona and Big Brew have a dominant strategy in this game. a. Trueb. False

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Answers (1)

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Alina Hayes · Answer 1

True

Explanation:

As long as the statement holds that ''each company's profit depends on whether Little Kona enters ... '' and the response of the existing monopoly to charge a low price to keep its market share; then both little Kona and Big Brew have a dominant strategy in this game.

They both will become a duopoly which implies that there will be two players in the industry and the price of Big Brow will be greatly influenced by the presence of Little Kona. Big Brow could charge as high as $8 if Little Kona is absent but as low as $2 if Little Kona is enters the industry.

Obviously they both have a dominant strategy, considering further that the entrance of Little Kona changes the industry structure from monopoly to duopoly