Consider the example at the beginning of the chap- ter. Suppose that there are only two blockbusters jockeying for position: Warner Bros.'s Harry Potter and Fox's Narnia. Suppose that blockbusters released in November share a total of $500 million in ticket revenues, whereas blockbusters released in December share a total of $800 million (a) Formulate the game played by Warner Bros. and Fox
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Consider the example at the beginning of the chap- ter. Suppose that there are only two blockbusters jockeying for position: Warner Bros.'s Harry Potter and Fox's Narnia. Suppose that blockbusters released in November share a total of $500 million in ticket revenues, whereas blockbusters released in December
share a total of $800 million
(a) Formulate the game played by Warner Bros. and Fox.
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- Two firms A and B compete on price. They can choose a low or high price. Firm A is smaller than firm B, and typically earn a lower payoff. For instance if both firms offer a low price firm A earns $400, and B $500, and if they both offer a high price Firm A earns just $400, while firm B earns $1,000. However, when Firm A offers a low price and B a high price firm A can gain an advantage and will earn $600, while B will earn $400. Finally, if the situation is reversed and B offers a low price and B a high price, B will steal the market and earn $1,500 while A will earn nothing. Please construct a payoff matrix for this situation Does Firm A have a dominant strategy?Consider the following entry game: Here, firm B is an existing firm in the market, and firm A is a potential entrant. Firm A must decide whether to enter the market (play "enter") or stay out of the market (play "not enter"). If firm A decides to enter the market, firm B must decide whether to engage in a price war (play "hard"), or not (play "soft"). By playing "hard," firm B ensures that firm A makes a loss of $2 million, but firm B only makes $2 million in profits. On the other hand, if firm B plays "soft," the new entrant takes half of the market, and each firm earns profits of $4 million. If firm A stays out, it earns zero while firm B earns $8 million. Which of the following are Nash equilibrium strategies? (not enter, hard) and (enter, soft) (enter, soft) and (not enter, soft) (enter, hard) and (not enter, soft) (enter, hard) and (not enter, hard)Solving for dominant strategies and the Nash equilibrium Suppose Felix and Janet are playing a game in which both must simultaneously choose the action Left or Right. The payoff matrix that follows shows the payoff each person will earn as a function of both of their choices. For example, the lower-right cell shows that if Felix chooses Right and Janet chooses Right, Felix will receive a payoff of 3 and Janet will receive a payoff of 7. Attached the table The only dominant strategy in this game is for (Janet / Felix) to choose (Left / Right). The outcome reflecting the unique Nash equilibrium in this game is as follows: Felix chooses (Left / Right) and Janet chooses (Left / Right).
- Suppose that Flashfry and Warmbreeze are the only two firms in a hypothetical market that produce and sell air fryers. The following payoff matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for fryers. Warmbreeze Pricing High Low Flashfry Pricing High 11, 11 2, 15 Low 15, 2 8, 8 For example, the lower-left cell shows that if Flashfry prices low and Warmbreeze prices high, Flashfry will earn a profit of $15 million, and Warmbreeze will earn a profit of $2 million. Assume this is a simultaneous game and that Flashfry and Warmbreeze are both profit-maximizing firms. If Flashfry prices high, Warmbreeze will make more profit if it chooses a price, and if Flashfry prices low, Warmbreeze will make more profit if it chooses a price. If Warmbreeze prices high, Flashfry will make more profit if it chooses a price, and if Warmbreeze prices low, Flashfry will make more profit if…Consider the following static game with two firms as the players. Each firm must decide either to upgrade (U) an existing good to a new version; or not upgrade it (N). The decisions are simultaneous. If a firm chooses to upgrade, they have to pay a fixed cost of 7. If they don’t upgrade, there is no fixed cost. The marginal cost is always equal to 3. The demand side of the market is as follows: If neither firm upgrades, each firm sells 2 units at price 4. If both firms upgrade, each firm sells 3 units at price 5. If only one firm upgrades, the one who upgrades sells 5 units at price 5, and the other firm does not sell anything.Untied and Air ’R’ Us are the only two airlines operating flights between Collegeville and Bigtown. Each airline can charge either a high price or a low price for a ticket. The accompanying matrix shows their payoffs, in profits per seat (in dollars), for any choice that the two airlines can make. Suppose the two airlines play a one-shot game—that is, they interact only once and never again. What will be the Nash (noncooperative) equilibrium in this one-shot game? Explain why this is the likely outcome. Now suppose the two airlines play this game twice. Each airline then considers the future and decides on a “tit-for-tat” strategy, that is, it starts off charging the high price in the first period, and then in the second period it does whatever the other airline did in the previous period. If both play this…
- Barnes and Nobel and Amazon are the two largest online book retailers in the U.S.. The two companies compete in the online market for‘Harry Potter and the Sorcerer’s Stone’, a famous book by the English author J. K. Rawling. Both companies can buy copies of the bookfrom Scholastic at $8 per copy and have an additional average cost $1 per copy.Use game theoretical concepts to explain why, even if the two companies have significant market power, on most days they both sell the bookat $9 per copy.What an oligopoly is? Explain in details. Solve the following problem: Assume that two airline companies decide to engage in collusive behaviour. Let’s analyse the game between two such companies. Suppose that each company can charge either a high price for tickets or a low price. If one company charges €100, it earns low profits if the other company charges €100 also, and high profits if the other company charges €200. On the other hand, if the company charges €200, it earns very low profits if the other company charges €100, and medium profits if the other company charges €200 also. 1. Draw the decision box for this game. 2. What is the Nash equilibrium in this game? Explain. 3. Is there an outcome that would be better than the Nash equilibrium for both airlines? How could it be achieved? Who would lose if it were achieved?For the R & D game that Kimberly-Clark(Kleenex) and Procter & Gamble (Puffs) Play. Each firm has two strategies: Do R&D or do not R&D. If neither firm does R&D, Kimberly-Clark makes $30 million and Procter & Gamble makes $70 million. If both does R&D, Kimberly-Clark makes $5 million and Procter & Gamble makes $45 million. if only Procter & Gamble does R&D, it makes $85 million and Kimberly-Clark makes -$10 million, and if only Kimberly-Clark does R&D it makes $85 million and Procter & Gamble makes -$10 million. 7) Create the payoff matrix for this game?
- Examine the following game tree. Fred and Sally are planning on running competing restaurants. Each must decide whether to rent space or buy space. Fred goes first at decision node F. Sally goes second at either decision node S1 or decision node S2 (depending on what Fred chose to do at decision node F). Note that the payoff to Sally at terminal node A is X. a. If X < 12, what terminal node will the subgame perfect Nash equilibrium path lead to? b. If X > 12, what terminal node will the subgame perfect Nash Equilibrium path lead to? c. Suppose that X = 11 and that it is now possible for Fred to make a side payment of value V to Sally that will boost her payout at terminal node A from X = 11 to X = 11 + V. What is the minimum amount that V can be such that the subgame perfect Nash equilibrium path will lead to terminal node A? Assume that V can take on only discrete units (0, 1, 2, 3,…).In the game depicted below, firms 1 and 2 must independently (no collusion) decide whether to charge high or low prices. (a) What is the Nash equilibrium for the above game? (b) If the firms were able to collude, what outcome would they settle on? (c) Is there any incentive for Firms 1 and 2 to cheat on the collusive outcome? Please explain.QUESTION 1 Stackelberg duopoly game is also known as the ________ model. If we change the Stackelberg ______ competition game to a simultaneous-move game, we get the ______ game results. leader-follower, quantity; Cournot Competitive fringe; price; backward induction leader-follower, quantity; Bertrand entry, price; Cournot QUESTION 2 Comparing Stackelberg and Cournot competition results, we can say that the _____ is better off while the ______ is worse off under Stackelberg than under Cournot results. This result show that there is _______________ advantage. entrant, incumbent, investment leader, follower, first-mover follower, leader, a size incumbent, entrant, first-mover QUESTION 3 Mark all the FALSE statements An equilibrium is a collection of strategies (and a strategy is a complete plan of action), whereas an outcome describes what will happen only in the contingencies that are expected to arise, not in every contingency that might arise. In games of complete but imperfect…
