1) Two firms are considering entering a new market where currently no other firm exist. It is predicted that there will be enough demand so that both these firms can make positive economic profits. There is no fixed cost and two firms are identical. Discuss how a simultaneous entry game will be different from a sequential entry game for these two firms. Also discuss, how the output decision and market share will be different in these two scenarios.
1) Two firms are considering entering a new market where currently no other firm exist. It is predicted that there will be enough demand so that both these firms can make positive economic profits. There is no fixed cost and two firms are identical. Discuss how a simultaneous entry game will be different from a sequential entry game for these two firms. Also discuss, how the output decision and market share will be different in these two scenarios.
2) In two players dynamic games the player who moves second gets the advantage because we solve the game backwards. Explain why or why not?
3) Asma has a credit card account with Bank Muscat. The bank is considering whether to raise Asma’s credit card interest rate. Asma can respond by moving to National bank of Oman (NBO) or do nothing. If Bank Muscat raises Asma’s interest rate and Asma does nothing, then Bank Muscat increases profit by 300 OMR while Asma receives -300 OMR. If Bank Muscat raises Asma’s interest rate and Asma transfers her account to NBO then Bank Muscat receives -150 and Asma receives 100 OMR. If Bank Muscat does nothing and Asma does nothing, then both gets 0 OMR. If Bank Muscat does nothing and Asma transfer her account to NBO then Bank Muscat receives -150 while Asma receives -75 OMR.
a. Draw the game with the help of a tree chart.
b. If you are a bank manager of the Bank Muscat, then what is the best strategy for you.
c. What is the best strategy if you are helping Asma with her decision?
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A simultaneous entry game will be different from a sequential entry game for these two firms
In simultaneous games, the movement of the two firms is together. In this, the firms do not know about the move of other firms. For example, a firm has knowledge that the other firm will not use a single strategy but they do not know about the number of strategies the other firm may use.
In the sequential game, the firms will be aware of the moves of other firms who have already adopted a strategy. In this, the firms will not have a lot of knowledge of the strategies of the other firm.
In sequential, the firms have prior knowledge of the other firm's moves but in simultaneous games, the firms do not. Sequential game is more of an extensive game that allows explicit representation of a number of important aspects, like the sequencing of the firm's possible moves, firm's choices at all the decision point, the information that each firm has about the other firm’s moves and when the firm makes a decision, and his payoffs for all possible game outcomes. Simultaneous is more of a strategy game that the firm's uncoerced, and there is given high significance often to autonomous decision-making skills in determining the final outcome. Mostly all the strategy games will require internal decision tree style thinking, and typically very high situational awareness.
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