# 2.3 Dominant Strategy. Dominant Strategy Produces “A Higher

2036 WordsApr 19, 20179 Pages
2.3 Dominant strategy Dominant strategy produces “a higher payoff than any other strategy the player can use for every possible combination of its rivals’ strategies” (Perloff). In other words, in game theory, strategic dominance results in better strategies than any other competitors. This will be explained more detailed later in this report. 2.4 Nash equilibrium “The Nash Equilibrium is a concept of game theory where the optimal outcome of a game is one where no player has an incentive to deviate from his chosen strategy after considering an opponent 's choice” (Investopedia). The Nash equilibrium is said to exist if a player has no incentive to independently change his course of action in the game. This is a point where both players…show more content…
For example, during the summer, more frequent travel increases the demand of gasoline. On the other hand, the demand decreases in the winter. The higher the demand, the larger the price tags. Demand differs by season. Calculating the cost of gasoline “When a station receives a load of gasoline, an invoice is generated that list the price of gasoline by grade. The price will be determined by the prevailing wholesale cost at the time of delivery, the freight, and federal, state and local taxes applicable to the station 's location” (DeCostanza, P1). Labor expense is also factored into the estimation of the cost of gasoline at gasoline stations as a baseline. Determining competitive conditions Gasoline prices vary at each gasoline station because gasoline marketing is very competitive. Retail prices of competing stations are determined by a pressure of prices in immediate trading areas. Gasoline sales are tools to increase sales traffic for other more profitable products like convenience store items: “Giveaway the gasoline to sell the coffee is a saying often heard in the convenience store business” (DeCostanza, P1). Similarly, because auto repair shops need to build their customer base for repair, auto repair shops might sell gasoline cheaper than other gasoline stations nearby. 3.2 Gasoline prices Game theory helps us understand the behavior of gasoline station owners in setting gasoline prices. Table 3 is a simple application of game theory to gasoline pricing.