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 15A, Problem 10E
To determine
To Ascertain: The bid amount that the former company can bid, based on the given information and the conditions.
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Burger Doodle, the incumbent firm, wishes to set a limit price of $8 (rather than the profit-maximizing price of $12) to prevent Designer Burger from entering its profitable market. The game tree above shows the payoffs for various decisions. Burger Doodle makes its pricing decision, then Designer Burger decides whether to enter or stay out of the market. If Designer Burger chooses to enter the market, then Burger Doodle may or may not decide to accommodate Designer’s entry by changing its initial price to the Nash equilibrium price of $10.
If Burger Doodle canNOT make a credible commitment to maintain its initial price should Designer Burger decide to enter the market, then Burger Doodle will set price equal to $________ at decision node 1 and the outcome _____________(is, is not) a Nash equilibrium.
Suppose the five potential entrants are identical in that each faces the same entry cost of $300. Given the total number of companies in the market, the accompanying table reports a company’s net profit (or payoff) if it enters. As before, the payoff from staying out of the market is zero, and each company can choose either enter or do not enter. Find all Nash equilibria.
Economics
Consider an infinitely repeated game played between two firms with the following payoffs (firm 1 is listed first):
· (250, 290) if both firms deviate
· (290, 330) if both firms cooperate
· (230, 370) if only firm 2 deviates
· (350, 270) if only firm 1 deviates
a. What probability-adjusted discount factor would ensure that Firm 1 would cooperate in a Nash equilibrium if Firm 2 applied a trigger strategy in the event that Firm 1 deviated?
b. What probability-adjusted discount factor would ensure that Firm 2 would cooperate in a Nash equilibrium if Firm 1 applied a trigger strategy in the event that Firm 2 deviated?
Chapter 15A Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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- The FCC has hired you as a consultant to design an auction to sell wireless spectrum rights. The FCC indicates that its goal of using auctions to sell these spectrum rights is to generate revenue. Since most bidders are large telecommunications companies, you rationally surmise that all participants in the auction are risk neutral. Which auction type—first-price, second-price, English, or Dutch—would you recommend if all bidders value spectrum rights identically but have different estimates of the true underlying value of spectrum rights? Explainarrow_forwardIs the following statement true? "5 bidders with private values uniformly distributed between 0 and 1 enter a 1st price auction. Assuming that everyone is playing the symmetric equilibrium bidding strategy, the optimal bid for a bidder who makes a draw of 0.75 is 0.7."arrow_forwardThe Federal Communications Commission (FCC) has hired you as a consultant to design an auction to sell wireless spectrum rights. The FCC indicates that its goal of using auctions to sell these spectrum rights is to generate revenue. Since most bidders are large telecommunications companies, you rationally surmise that all participants in the auction are risk neutral. Which auction type—first-price, second-price, English, or Dutch—would you recommend if all bidders value spectrum rights identically but have different estimates of the true underlying value of spectrum rights?arrow_forward
- The Federal Communications Commission (FCC) has hired you as a consultant to design an auction to sell wireless spectrum rights. The FCC indicates that its goal of using auctions to sell these spectrum rights is to generate revenue. Since most bidders are large telecommunications companies, you rationally surmise that all participants in the auction are risk neutral. Which auction type—first-price, second-price, English, or Dutch—would you recommend if all bidders value spectrum rights identically but have different estimates of the true underlying value of spectrum rights? Kindly give a brief one-page description as part of the assignment.arrow_forwardTwo firms, X and Y, are planning to market their new products. Each firm can develop TV, Laptop. Market research indicates that the resulting profits to each firm for the alternative strategies are given by the following payoff matrix : MATRIX IS ATTACHED Find the Nash equilibria for this game, assuming that both firms make their decisions at the same time. (explain the decision step by step) If each firm is risk averse and uses a maximin strategy, what will be the resulting equilibrium? (explain the decision step by step) What will be the equilibrium if Firm X makes its selection first? If Firm Y goes first?arrow_forwardSuppose 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.arrow_forward
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