DOMINANT STRATEGIES

A dominant strategy is the one that is best for an organization (player) and is not influenced by the strategies of other organizations (players). 

Suppose organizations ABC or XYZ adopt a dominant strategy. 

In such a case, their payoff matrix is shown in Table-3: 

As shown in Table-3, when ABC is not making any change in prices, then XYZ has also not changed its prices. This would results as the best strategy of XYZ. However, when ABC has increased its prices, then XYZ would earn profit of Rs. 300 crores by keeping its prices constant. When XYZ increases its prices, it would earn Rs. 500 crores. Therefore, it is better for XYZ to make its price constant so that it can earn more. The dominant strategy- for XYZ is to keep the prices of its products constant. On the other hand, the dominant strategy- of ABC would also be to keep the price constant. This is because ABC would incur losses if it increases the prices of its products.

While analyzing games, the player who has adopted the dominant strategy is identified and then the strategies of other players in the game are judged on the basis of the dominant strategy. However, the existence of the dominant strategy in every game is not possible.

On the other hand, a dominated strategy is the one that provides players the least payoff as compared to other strategies in a game. In the analysis of the game theory, dominated strategies are identified so that they can be eliminated from the game. Let us understand the dominated strategy with the help of an example.

Suppose in a football match, the aim of offense team is to maximize its goals, while that of defense team is to minimize the offense’s goal. Now, assume that there are only two plays left and the ball is with the offense team.

In this case, the offense team would adopt two strategies; one is to run and another is to pass. On the other hand, the defense team would have three strategies; one is to defend against running, defend against pass through line-backers and defend against pass through quarterback blitz.

Table-4 shows the outcomes of the strategies adopted by offense and defense team:

In Table-4, the numerical value represents the goals made by the offense team. In this case, neither offense nor defense team have a dominant strategy. However, the defense team does have one dominated strategy that is quarterback blitz.

Either in case of defending run or pass, quarterback blitz strategy would yield more goals to the offense team. Therefore, the defense team should avoid quarterback blitz strategy. Dominated strategy helps in making the analysis of game easier by reducing the number of options.