When you approach this and other game theory problems, the first question to ask is whether there is either strong or weak dominance. Check for this first. If you don’t find a dominant strategy, then the next step is to determine whether there is a Nash equilibrium (or equilibria).

In the case of problem #4, you should assume that that store location choices are mutually exclusive – only one store can be built at each location; i.e., Barnes & Noble and Borders will not build their stores adjacent to or on top of each other at the same location. Therefore, given the mutual exclusivity of store location choices, in order to have an incentive to bid higher for a particular location, then it must be the case that each firm finds that locating at the same location is optimal.  However, if this doesn’t occur, then when one firm makes a choice, the other firm’s “best response” would be to simply choose the other (available) location.

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