Dominant strategy
Topic: Market Structures, Market Failure and Competition · NCERT: Beyond NCERT
Meaning
In game theory, a dominant strategy is a choice that gives a player the best payoff whatever the other players do. The player does not need to guess the rivals' moves, because this option is better in every case. When every player has a dominant strategy, the outcome of the game is easy to predict. But that outcome is not always good for the players as a group.
Example
Two cement firms, A and B, choose between keeping a high cartel price and cutting it (profits in ₹ crore, listed as A, B). Both keep high: (10, 10). A cuts and B keeps: (15, 2). A keeps and B cuts: (2, 15). Both cut: (5, 5). If B keeps high, A earns more by cutting (15 > 10). If B cuts, A still earns more by cutting (5 > 2). So cutting is A's dominant strategy, and B's too.
Don't confuse with
- Nash equilibrium: a set of strategies where no player gains by changing strategy alone, given the others' choices. Each player needs only a best reply to what the others actually do. A game can have a Nash equilibrium even when no player has a dominant strategy.