from that game theory problem on the exam review handout

A.
Does either company have a dominant strategy? If so, explain.
Nike has a dominant strategy to price “High”. Adidas does not have a dominant strategy.
B.
What will be the outcome (Nash-equilibrium) of the game?
This game will still have an outcome: Adidas can determine that Nike will play High., so it will go High too.
C.
If Nike becomes the acknowledged price leader in the industry (that is, they get to move first), what will be its dominant strategy? What will be the outcome of the game?
Nike would choose the outrageously high price if it believed that Adidas would follow. Nike would earn $1.2 million in profits and Adidas would earn $600,000 in profits. While Nike would have an incentive to charge the high price if Adidas charged the outrageously high price, Nike would know that Adidas would follow Nike’s pricing, and this would reduce Nike’s profit. Therefore, the outcome of the game with Nike as price leader is that both charge the outrageously high price.