- Market research has determined estimates for each law firm’s expected profits for the various outcomes of this scenario. If both firms agree to the merger then each should individually expect a profit of 20 million in the next year.If our client agrees to the merger while the competitor does not, our client would expect profits of 7 million in the next year while the competitor would expect profits of 25 million.If the decisions were reversed then the payouts would also be reversed.If neither firm agrees to the merger then both would expect profits of 15 million in the next year.
Construct a payoff matrix to represent the profits (in millions of dollars) for each firm under the different outcomes.
2.Use the payoff matrix from number 1 to determine if a dominant strategy exists for either firm.Show all of your work.
3.Use the payoff matrix from number 1 to determine any Nash equilibrium points.Show all of your work.
4.Explain your recommendation to the client, citing your work from number 2 and number 3.
5.Working in parallel your co-worker wants to make the recommendation that the client should agree to the merger no matter what as it will give the chance of obtaining the highest profits.Do you agree with this strategy?Explain why or why not?
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