Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Question
Chapter 13, Problem 6E
To determine
To Ascertain:
On the basis of the given scenario, propose a satisfactory solution and derive proper conclusions.
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Students have asked these similar questions
Two players, Player 1 and Player 2, are playing a repeated prisoner’s dilemma. Payoffs are described in the following matrix. Answer which statement is correct:
Select one:
a.
A trigger strategy will never support (A,A) as an equilibrium
b.
A tit-for-tat strategy will never support (A,A) as an equilibrium
c.
A tit-for-tat strategy will support (A,A) as an equilibrium if δ > 0.7
d.
A trigger strategy will support (A,A) as an equilibrium if δ > 0.7
Two firms are playing an infinitely-repeated prisoner's dilemma pricing game of the following form:
Firm 1
Firm 2
Low price
High Price
Low price
4, 4
20, 0
High price
0, 20
12,12
Consider the decision to cheat ONLY ONCE for a firm in this game against the opponent that is a Tit-for-Tat player. Cheating firm gets an extra in payoffs for the first round, but has to face $0 payoffs for the second round in order to be able to bring the opponent to the collusive outcome again in the third round. What is the minimum rate of return (r) that would make defecting only once? Show your calculations.
Suppose that two companies – AlphaTech and BetaLabs – are competing for market share and must simultaneously decide whether to develop a new product. Both companies are reluctant to make a decision as it is only economical for one company to develop a new product. Each company earns nothing if they decide not to develop a new product. One company can earn $50 million by developing a new product only if their competitor does not. If both companies decide to develop a new product, they each lose $10 million.
Complete the payoff matrix to represent this game.
Based on your solution in part (a), determine the maximin solution.
Chapter 13 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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- Select the term that best describes each definition listed in the following table. Definition Nash Equilibrium Dominant Strategy Collusion Tit-for-tat Strategy Payoff Matrix Prisoners' Dilemma Game A case in which individually rational behavior leads to a jointly inefficient outcome A player's best choice, if it exists, regardless of his or her opponent's strategy A strategy in which a player cooperates until the other player defects and then defects until the other player cooperates again The event that occurs when agents in a game form an agreement about which strategies to implementarrow_forwardTwo gas stations, A and B, are locked in a price war. Each player has the option of raising its price (R) or continuing to charge the low price (C). They will choose strategies simultaneously. If both choose C, they will both suffer a loss of $100. If one chooses R and the other chooses C, (i) the one that chooses R loses many of its customers and earns $0, and (ii) the one that chooses C wins many new customers and earns $1000. If they both choose R, the price war ends and they each earn $500. Does player b have a dominant strategy? Explain. What course of action will player A and B choose?arrow_forwardTwo gas stations, A and B, are locked in a price war. Each player has the option of raising its price (R) or continuing to charge the low price (C). They will choose strategies simultaneously. If both choose C, they will both suffer a loss of $100. If one chooses R and the other chooses C, (i) the one that chooses R loses many of its customers and earns $0, and (ii) the one that chooses C wins many new customers and earns $1000. If they both choose R, the price war ends and they each earn $500. Draw the payoff matrix for this game. What is the optimal strategy? Does player A have a dominant strategy? Explain. Does player B have a dominant strategy? Explain How many Nash equilibria does this game have ? what course of action will player A & B choose?arrow_forward
- Two gas stations, A and B, are locked in a price war. Each player has the option of raising its price (R) or continuing to charge the low price (C). They will choose strategies simultaneously. If both choose C, they will both suffer a loss of $100. If one chooses R and the other chooses C, (i) the one that chooses R loses many of its customers and earns $0, and (ii) the one that chooses C wins many new customers and earns $1000. If they both choose R, the price war ends and they each earn $500. 1. Draw the payoff matrix for this game. B B R C A R (500,500) (0,1000) A C (1,000,0) (-100,-100) 2. What is the optimal strategy? R for A and R for B 3. Does player A have a dominant strategy? Explain. No player A doesn't have a dominant strategy. If player B chooses R, A's best response is to settle on C. If B chooses C, A's best response is to choose C. Since there is no single best response, A does not have a dominant strategy. 4. Does player…arrow_forwardSelect the term that best describes each definition listed in the following table. Definition Nash Equilibrium Dominant Strategy Collusion Tit-for-tat Strategy Payoff Matrix Prisoners' Dilemma Game A player's best choice, if it exists, regardless of his or her opponent's strategy A strategy in which a player cooperates until the other player defects and then defects until the other player cooperates again A set of strategies (one for each player) in which each player's strategy is the best option for that player, given the chosen strategy of the player's opponents A visual representation of a game showing all possible strategies for each player and all potential outcomes and payoffsarrow_forwardConsider an ongoing sequence of pairwise marketing competitions between three companies with promotional campaigns of varying degrees of success. Each campaign involves comparative advertising belittling the target company. The company with the most loyal customers (call this firm “Most”) enjoys 100 percent success when it attacks either of the others. The company with the least loyal customers (“Least”) has a 30 percent success rate when it belittles either Most or “More.” More experiences an 80 percent success rate. The firms each launch their advertising attacks one at a time in an arbitrary sequence. Least goes first and can attack either Most or More. More attacks second, and Most attacks third. If more than one of the opponents survives the first round of competition, the order of play repeats itself: Least, then More, then Most. Any player can skip his or her turn; that is, the three actions available to Least to initiate the game are as follows: attack More, attack Most, or do…arrow_forward
- Which of the following is FALSE for the grim trigger strategy and the infinite horizon repeated Prisoner's Dilemma game illustrated above? A. In the grim trigger strategy profile, if a player chooses D in a period, then both players chooses D forever after that period B. The threshold discount factor for sustaining cooperation under grim trigger strategy depends on the utility numbers in the stage game C. If all utility numbers remain the same but 3 is replaced by 5 in the stage game, then cooperation CANNOT be sustained in this game for all possible values of the discount factor.arrow_forwardSynergy and Dynaco are the only two firms in a specific high-tech industry. They face the following payoff matrix as they decide upon the size of their research budget: Synergy's Decision Large Budget Small Budget Dynaco's Decision Large Budget $40 million, $30 million $60 million, $0 Small Budget $0, $30 million $50 million, $40 million If Synergy believes Dynaco will go with a large budget, it will choose a budget. If Synergy believes Dynaco will go with a small budget, it will choose a budget. Therefore, Synergy a dominant strategy. If Dynaco believes Synergy will go with a large budget, it will choose a budget. If Dynaco believes Synergy will go with a small budget, it will choose a budget. Therefore, Dynaco a dominant strategy. True or False: There is a Nash equilibrium for this scenario. (Hint: Look closely at the definition of Nash equilibrium.) True Falsearrow_forwardMicrosoft and a smaller rival often have to select from one of two competing technologies, A and B. The rival always prefers to select the same technology as Microsoft (because compatibility is important), while Microsoft always wants to select a different technology from its rival. If the two companies select different technologies, Microsoft's payoff is 6 units of utility, while the small rival suffers a loss of utility of 2. If the two companies select the same technology, Microsoft suffers a loss of utility of 2 while the rival gains 2 units of utility. Using the given information, fill in the payoffs for each cell in the matrix, assuming that each company chooses its technology simultaneously. Microsoft Technology A Technology B Rival Technology A Rival: , Microsoft Rival: , Microsoft Technology B Rival: , Microsoft Rival: , Microsoft True or False: There is no equilibrium in pure strategies. True False Note:- Do not provide handwritten…arrow_forward
- Microsoft and a smaller rival often have to select from one of two competing technologies, A and B. The rival always prefers to select the same technology as Microsoft (because compatibility is important), while Microsoft always wants to select a different technology from its rival. If the two companies select different technologies, Microsoft's payoff is 4 units of utility, while the small rival suffers a loss of utility of 2. If the two companies select the same technology, Microsoft suffers a loss of utility of 2 while the rival gains 2 units of utility. Using the given information, fill in the payoffs for each cell in the matrix, assuming that each company chooses its technology simultaneously. Microsoft Technology A Technology B Rival Technology A Rival: , Microsoft Rival: , Microsoft Technology B Rival: , Microsoft Rival: , Microsoft True or False: There is an equilibrium for this game in pure strategies.arrow_forwardRefer to the normal-form game of price competition in the payoff matrix below Firm B Low Price High Price Firm A Low Price 0, 0 50, −10 High Price −10, 50 20, 20 Suppose the game is infinitely repeated, and the interest rate is 20 percent. 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, then the agreement is no longer valid, and each firm may make independent decisions. Will the trigger strategy be effective in implementing the collusive agreement? Please explain and show all necessary calculations.arrow_forward
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