here are two adjacent coal fields A and B. Under the fields is a common pool of coal worth $12 million. Drilling to extract the coal costs $1 million. If each company drills, each will get half the coal and each will earn a $5 million profit. Either company could drill a second time. If one company has two of the three wells drilled, that company gets two-thirds of the coal, yielding a profit of $6 million, and the other company gets one-third of the coal, for a profit of $3 million. If both companies drill a second well, the companies again split the coal, and each earn a profit of $4 million. What is company A's dominant strategy? Should it drill one well, two wells, or is there no dominant strategy? What is company B's dominant strategy? Should it drill one well, two wells, or is there no dominant strategy? What is the Nash equilibrium?
There are two adjacent coal fields A and B. Under the fields is a common pool of coal worth $12 million. Drilling to extract the coal costs $1 million. If each company drills, each will get half the coal and each will earn a $5 million profit. Either company could drill a second time. If one company has two of the three wells drilled, that company gets two-thirds of the coal, yielding a profit of $6 million, and the other company gets one-third of the coal, for a profit of $3 million. If both companies drill a second well, the companies again split the coal, and each earn a profit of $4 million.
What is company A's dominant strategy? Should it drill one well, two wells, or is there no dominant strategy?
What is company B's dominant strategy? Should it drill one well, two wells, or is there no dominant strategy?
What is the Nash equilibrium?
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