HW7 Econ 308

If a strategic move is credible, it is likely to

change the actions of rivals.

Repeated market interaction, particularly when there is no end to the interaction in sight, can

change the dominant strategic equilibrium.

When there are large network effects of adopting a new technology, firms often feel that government regulation or joint ventures can solve the

coordination problem.

The process of looking at the final outcome and then reasoning back to initial decisions is called

backward induction.

In a small numbers environment, ______ is a useful managerial tool for considering rivals' or competitors' responses to decision making.

game theory

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 $1 million, but firm B only makes $1 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 $5 million. If firm A stays out, it earns zero while firm B earns $10 million. Which of the following are Nash equilibrium strategies?

(not enter, hard) and (enter, soft)

If the bus companies can expect to bid for contracts every 6-12 months for new buses, then the outcome may shift to

GMB—High, VolgaBus—High.

The likely outcome for a simultaneous nonrepeated bid is

GMB—Low, VolgaBus—Low.

Identify the statement that best defines Nash equilibrium.

It is a set of strategies in which a firm does the best it can, given the action of its rival.

Which of the following can be used to predict the outcome of a game if there are no dominant strategies in the game?

Nash equilibrium

The dominant strategy for player 2 in the following game is: Player 1 Player 2 t1 t2 t3 S1 4,10 3,0 1,3 S2 0,0 2,10 10,3

None of the answers is correct.

Refer to the following game. Frim A Firm B Low Price High Price Low Price (10,9) (15,8) High Price (-10,7) (11,11) Which of the following is true?

None of the answers is correct. References

Which of the following statements is true?

Not every game has a dominant strategy.

When a worker announces that he plans to quit, say next month, the "threat" of being fired has no bite. The worker may find it in his interest to shirk. What can the manager do to overcome this problem?

Provide the worker some rewards for good work that extend beyond the termination of employment with your firm.

We have two players A and B, where A can go L or R, and B can go T, B, or R. The payoffs are decided after this. Which of the following is a characteristic of such games?

Simultaneous moves

Which of the following is a difference between a pure strategy and a mixed strategy?

When a player chooses a specific action in a game, it is a pure strategy, while in a mixed strategy players randomize.

As GMB moves to select a new passive restraint safety system for its buses, it finds that its competitor, VolgaBus, opposes the move with an alternative technology. GMB must now evaluate its strategy and determine whether

VolgaBus's alternative is credible.

Suppose Toyota and Honda must decide whether to make a new breed of side-impact airbags standard equipment on all models. Side-impact airbags raise the price of each automobile by $1,000. If both firms make side-impact airbags standard equipment, each company will earn profits of $2.5 billion. If neither company adopts the side-impact airbag technology, each company will earn $1 billion (due to lost sales to other automakers). If one company adopts the technology as standard equipment and the other does not, the adopting company will earn a profit of $3 billion and the other company will lose $1.5 billion. If you were a decision maker at Honda, would you make side-impact airbags standard equipment? If Toyota and Honda were able to cooperate, would you expect this same outcome?

Yes Yes

In the Battle of the Sexes game, Man likes to go to watch football, while Woman likes to go to the mall. Both of them would rather go together than go alone. They decide to show up to one of these places without contacting each other. A game like this will have

a Nash equilibrium in mixed strategies.

A dominant strategy is one where one firm picks

a strategy no matter what the rival does.

Use the following, one shot, normal-form game to answer the accompanying questions. a. Find each player's dominant strategy. b. Find each player's secure strategy. c. Find the Nash equilibrium for each player.

a) Player 1's dominant strategy: Player 1 has no dominant strategy . Player 2's dominant strategy: Player 2 has no dominant strategy . b) Player 1's secure strategy: B . Player 2's secure strategy: E . c) Player 1's Nash equilibrium: B . Player 2's Nash equilibrium: E .

A display of a game in a tree diagram with nodes for every move by the players is a(n)

extensive-form game.

Though Nash games are noncooperative, a cooperative outcome is more likely if

firms can easily monitor the outcomes from cooperation.

Though Nash games are noncooperative, a cooperative outcome is more likely if

firms expect the market relationship to last a long time.

As GMB and VolgaBus compete, GMB selects a new and superior brake technology. VolgaBus prefers a different brake technology, but feels trapped into selecting the same one used by GMB. This is due to

first-mover advantage.

Walmart built the base of its retailing market power in small cities and towns. In most of those towns, the size of the marketplace is so small that only one large retailer can successfully exist. This resulted in

first-mover advantage.

Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non-advertising firm will earn $1 million. If you and your rival plan to be in business for 10 years, then the Nash equilibrium is:

for each firm to advertise every year.

Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non-advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is:

for each firm to advertise.

If you advertise and your rival advertises, you each will earn $4 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non-advertising firm will earn $5 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is:

for neither firm to advertise.

Risk-averse managers often select a secure strategy that provides the

highest payoff among the worst payoffs.

We have two players, A and B, where A moves first and can go L or R, and B moves next and can go T, B, or R. A moves again and can go L, R, or M. The payoffs are decided after this. The best approach to solve such games is through

mixed strategies.

A coordination problem usually occurs in situations where there is:

more than one Nash equilibrium.

Game theory between two firms with two outcomes tends to emphasize

noncooperative games.

Negotiations and binding contracts are not possible between rivals in

noncooperative games.

Actions like entering a new market, pricing a new product, or making a bid to buy another company are all useful Nash-like managerial decisions because they are

not repeated often and the outcome depends on the simultaneous decisions of rivals.

Higher discount rates imply that

present payoffs are more important than future payoffs.

Sealed bid construction contracts are examples of market games that are

simultaneous and nonrepeated.

Actions that are taken to influence the beliefs or actions of rivals in favorable ways are

strategic moves.

If GMB were required to submit a single sealed bid to supply buses to MetroTravel, it would

submit a low price.

The benefit of a mixed strategy is

the element of surprise that baffles rivals.

Though Nash games are noncooperative, a cooperative outcome is more likely if

the long-run gains are greater than the short-run gains.