The following payoff table depicts service competition between two hospitals in a southwestern city. (Each payoff represents profit in millions of dollars) Hospital B's Service Basic All-Purpose Speciality Hospital A's Basic 5,7 5,4 12,6 services All-Purpose 4,5 8,7 7,4 Speciality 6,10 3,12 3,3
A. Does either hospital have a dominant strategy (or any dominated strategy)? Assuming they determine their strategies independently or 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. What 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?