Social Interactions Consider two companies who advertise to attract the same customers. If neither company advertises the companies split the market. If both advertise they also split the market, but profits are lower, since each company must spend on advertising. But if one company advertises and the other does not, the one that advertises attracts customers from the other. The game is represented in the following table: Firm B Advertise Don't Advertise Advertise Firm A gets $3 M Firm A gets $5 M Firm A Firm B gets $3M Firm B gets $2 M Don't Advertise Firm A get $2 M Firm A gets $4 M Firm B gets $5 M Firm B gets $4M

Social Interactions Consider two companies who advertise to attract the same customers. If neither company advertises the companies split the market. If both advertise they also split the market, but profits are lower, since each company must spend on advertising. But if one company advertises and the other does not, the one that advertises attracts customers from the other. The game is represented in the following table: Firm B Advertise Don't Advertise Advertise Firm A gets $3 M Firm A gets $5 M Firm A Firm B gets $3M Firm B gets $2 M Don't Advertise Firm A get $2 M Firm A gets $4 M Firm B gets $5 M Firm B gets $4M

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 3MC

See similar textbooks

Similar questions

Two players bargain over $20. Player 1 first proposes a split of(n, 20 - n), where n is an integer in {0, 1, ..., 20}. Player 2 can either accept or reject this proposal. If player accepts it, player 1 obtains $n and player 2 obtains $(20 - n). If player 2 rejects it, the money is taken away from them and both players will get $0. Question: Find two subgame perfect Nash equilibria of this game and state clearly each player's equilibrium strategies (recall that in a dynamic game, a player's strategy is a complete-contingent plan). Explain why the strategy profiles form a subgame perfect equilibrium.
Firm A Firm B Low Price High Price Low Price (2, 2) (10, −8) High Price (−8, 10) (15, 15) Suppose the game is infinitely repeated, and the interest rate is 10 percent. The firms are allowed to collude and make joint decisions. Both firms agree to charge a high price, provided no player has charged a low price in the past. This collusive outcome will be implemented with a trigger strategy that states that if any firm cheats (by charging a low price), then the agreement is no longer valid and each firm may make their own independent decisions. Will the trigger strategy be effective in implementing the collusive agreement? Please explain and show all necessary calculations.
Please answer all parts. Two construction companies EdilA and EdilB take part in a race contract to build a school. Both can bid 1000, 2000 or 3000. The winner (the lowest offer) builds the school and pays 900 of costs. 1. When both bid the same amount, EdilA wins the contract. Find the Nash equilibrium. 2. Assume instead that when both bid the same, neither gets the contract, and furthermore suffer a penalty of 10. Find the Nash equilibrium. 3. Assume instead that when both bid the same, each builds half the school (but sustains 600 of costs, thus more than half). Find the Nash equilibrium. 4. Under the hypothesis of point 2 assume that EdilB can observe the offer made by EdilA before it makes its offer, and that EdilA anticipates that. Find the Nash equilibrium by backward induction of this sequential game.
Consider the following simultaneous move game where player 1 has two types. Player 2 does not know if he is playing with type a player 1 or type b player 1. Find the all the possible Bayesian Nash Equilibriums (BNE) of this game.
Game theory has a wide range of applicationsin business and economics. e.g. market coordination, pricing strategy, advertising decision etc. Now suppose that your firm competes against another firm for customers. You and your rivals know that your products will be obsolete at the end of the year and must simultaneously determine whether or not to advertise. In this type of business, the effect of advertising is not to entice customers to buy the product but to induce them to switch among the products of different firms. Given the following pay-off matrix; FIRM A Strategy FIRM B Advertise NOT Advertise Advertise P4,000 / P4,000 P20,000 / P1,000 Don’t Advertise P1,000 / P2,000 P10,000 / P10,000 Using a simultaneous move – one shot game routine, determine the following; • Dominant strategy • Nash equilibrium • Under the Nash equilibrium condition, what is the optimum…
For the game in FIGURE 7.6, derive players’ best-reply functions, plot them as shown in Figure 7.5, and find the Nash equilibrium.
Exercise 6.1Suppose that two airlines decide to collude. Analyse the game between these two companies. Suppose that each of them can charge for tickets a high price or a low price. If one of them charges 100 euros, it gets few profits if the other also charges 100 euros and high profits if the other charges 200 euros. On the other hand, if the company charges 200 euros, it obtains very little profit if the other charges 100 euros and an average profit if the other also charges 200 euros. a) Represent the matrix of results of this game. b) What is the Nash equilibrium in this game? Explain your answer. c) Is there an outcome that would be better than the Nash equilibrium for the two airlines? How could it be achieved? Who would lose out if it were reached?
Two identical firms each have a cost function TC = 2y2 and the market demand for their output is P = -4Q+192a) Write the â€œbest responseâ€ function for each firm.b) Find the Nash equilibrium in this model c) Show that if each firm produces 1 fewer units than the result in (b), both firms make more profit. Use this information to construct a normal form game. Explain why this game is a prisonerâ€™s dilemma.
Explain all will rate what is always true for a pure nash equilibrium of a two-person non zero-sum game A.No player can improve his payoff with a unilateral change of strategy B. it is a Pareto maximum of the payoff matrix C. No player can worsen the payoff of his opponent with a unilateral change of strategy D. It gives worse payoffs to both players than any berge equilibrium
Martin has a brother and can take a selfish action, which pays him $10 and his brother $0, or an altruistic action, which pays him $6 and his brother $6. The parents love their children equally and decide how to distribute $20 between them. The parents' payment is the minimum of their two children's payments. Assume that the game is simultaneous. Find the Nash equilibrium.
For the game given, find a Nash equilibrium in which both players randomize.
Two rival companies competing in the same market need to decide their plans for future expansion of their stores. The Table below shows the possible outcomes of their mutually interdependent actions (payoffs are profits in £m) Giga Company Titanic Conglomerate No Change Refurbishment of existing stores Large Expansion No Change 30, 40 25, 35 15, 24 Refurbishment of existing stores 35, 30 28, 32 18, 33 Large Expansion 12, 22 18, 20 20, 25 The Nash equilibrium: (A) does not exist. (B) occurs when both firms choose Refurbishment of existing stores. (C) occurs when both firms choose Large Expansion. (D) occurs when both firms choose No Change.