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Consider the following game about product quality. A consumer and firm interact in a market. The consumer can buy the product or not buy the product. The firm can choose to produce a low quality product or a high-quality product. If the buyer does not buy and the firm produces a low-quality product, the buyer receives a payoff of 0 and the firm receives a payoff of 0. If the buyer does buy and the firm produces a low-quality product, the buyer receives a payoff of -10 and the firm receives a payoff of 10. If the buyer does not buy and the firm produces a high-quality product, the buyer receives a payoff of 0 and the firm receives a payoff of -10. If the buyer does buy and the firm produces a high-quality product, the buyer receives a payoff of 1 and the firm receives a payoff of 1. Assume that the buyer and the firm make their choice simultaneously. Which of the statements below is true?

  • The unique Nash Equilibrium to this game is (Don't buy: Low quality) and the firm has a dominant strategy.
  • The unique Nash Equilibrium to this game is (Buy: High quality) and the firm has a dominant strategy.
  • The unique Nash Equilibrium to this game is (Buy: Low quality) and the firm does not have a dominant strategy.
  • There are two Nash Equilibria in this game.
  • There is no Nash Equilibrium in this game.

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