The following payoff table depicts service competition between two hospitals in a southeastern city. (Each payoff represents profit in millions of dollars.)
Basic Hospital A's All-Purpose Services
Hospital B's Service
Basic All-Purpose Speciality
|
5, 7
|
5, 4
|
12, 6
|
|
4, 5
|
8, 7
|
7, 4
|
|
6, 10
|
3, 12
|
3, 3
|
|
|
Speciality
a. Does either hospital have a dominant strategy (or any dominated strategy)? Assuming they determine their strategies independently of one another, what are the hospitals' respective (Nash) equilibrium strategies? Explain briefly.
b. Suppose instead that the hospitals merge and, therefore, coordinate their service decisions. Which actions should they take? Explain briefly.
c. What general economic reasons might there be for a hospital merger to generate an increase in total profit? Would the hospitals' customers be likely to benefit from the merger? Under what circumstances? Explain carefully.