Final Game Theory
(Figure: Payoff Matrix for Blue Bottle and Opal Ocean) Use Figure: Payoff Matrix for Blue Bottle and Opal Ocean. The figure shows the potential profits of two producers of bottled water. Each has two strategies available to it: a high price and a low price. Suppose Blue Bottle charges a high price and Opal Ocean does the same. In the next period, Blue Bottle charges a low price and Opal Ocean incurs a loss. If Opal Ocean responds with a Grim trigger strategy, it will:
always charge a low price—the same as its best response.
Firms will choose a Grim trigger strategy if they:
believe that the firms in the industry will compete with each other for a long time to come.
(Figure: Nike and Reebok Sales) Use Figure: Nike and Reebok Sales. Reebok and Nike must decide whether to have a sale or not, based on the potential economic profits shown in the table. The Nash equilibrium in this game is:
both Reebok and Nike have sales.
(Figure: Oligopoly Pricing Strategy in Wireless TV Market II) Use Figure: Oligopoly Pricing Strategy in Wireless TV Market II. The Nash equilibrium in the cable TV market occurs when:
both firms set a low price, and each earns $90,000.
In a finitely repeated game, both players have an incentive to _____ during the last round.
defect
(Table: Nike and Reebok Advertising Game) Use Table: Nike and Reebok Advertising Game. The sneaker industry is dominated by Nike and Reebok, and each firm spends a lot of money on advertising. Suppose each firm is considering a costly television commercial during the World Series. The table shows the payoff matrix of profits that each firm would receive from its advertising decision, given the advertising decision of its rival. Profits in each cell of the payoff matrix are given as (Nike, Reebok). If both firms expect to play this game repeatedly (every year for the foreseeable future), and each follows a Grim trigger strategy, then in equilibrium, Nike _____ and Reebok _____.
does not advertise; does not advertise
(Figure: Payoff Matrix for Blue Bottle and Opal Ocean) Use Figure: Payoff Matrix for Blue Bottle and Opal Ocean. The figure shows the potential profits of two producers of bottled water. Each has two strategies available to it: a high price and a low price. The Nash equilibrium occurs when Blue Bottle charges a _____ price and Opal Ocean charges a _____ price.
low; low
In an indefinitely repeated game, the players face: Correct!
the same strategic interaction an unknown number of times.
(Table: Nike and Reebok Advertising Game) Use Table: Nike and Reebok Advertising Game. The sneaker industry is dominated by Nike and Reebok, and each firm spends a lot of money on advertising. Suppose each firm is considering a costly television commercial during the World Series. The table shows the payoff matrix of profits that each firm would receive from its advertising decision, given the advertising decision of its rival. Profits in each cell of the payoff matrix are given as (Nike, Reebok). If each firm independently decides whether to advertise, the Nash equilibrium is for Nike _____ and Reebok _____ during the World Series.
to advertise; to advertise
Figure: Nike and Reebok Sales) Use Figure: Nike and Reebok Sales. Reebok and Nike must decide whether to have a sale or not, based on the potential economic profits shown in the table. If Nike and Reebok were to collude to maximize profits, what strategy should each follow?
Nike: no sale; Reebok: no sale
(Figure: Nike and Reebok Sales) Use Figure: Nike and Reebok Sales. Reebok and Nike must decide whether to have a sale or not, based on the potential economic profits shown in the table. If Nike and Reebok were to collude to maximize profits, and both decided to cheat on the collusive agreement, what strategy should each follow?
Nike: sale; Reebok: sale
If a player has a Grim Trigger strategy, that player:
cooperates if other players have cooperated in all previous rounds but defects if any player ever defects.