Question

Please help with question d

PART II: GAME THEORY A few months ago, Samsung revealed their new smartphone whose screen folds and unfolds according to the user's preferences. This addition seems so promising and profitable that Apple is planning to enter the market for foldable smartphones as well and is deciding on its production scale. Naturally, Samsung is ready to respond and should decide which pricing structure is the most convenient: setting a high price"accommodate) or starting a price war. The payoffs (in millions of dollars) for both companies are shown in the following payoff matrix: Samsung Accommodate Price War 67 32 Enter on Small Scale 13 18 25 Enter on Large Scale 15 Here, Apple's payoffs are in the lower left of each box, Samsung's payoffs are in the upper right. (a) If both firms move simultaneously, does either firm have a dominant strategy? Explain (b) Is there a pure strategy Nash equilibrium given that both firms move simultaneously? What is Apple's profit? (c) If Apple has a head start over Samsung (meaning they get to make their decision first), what is the new Nash equilibrium? What is Apple's profit? Draw a decision tree to show your argument. (d) Suppose now that a consultant tells Apple's CEO that the company can strictly improve its situation relative to part (b) by not entering this new market and instead choosing to run advertisements critical of Samsung's new product ("bash" the product). This adds a third possible strategy for Apple, but unfortunately Apple's current CEO doesn't know all the potential payoffs- he's no Steve Jobs. The new matrix is depicted below. What values can these unknown parameters and y take such that the consultant's claim is correct? Here, Apple and Samsung move simultaneously. Samsung Accommodating Prie War 67 32 Enter on Small Scale 13 18 25 Enter on Large Scale 15 9 15 Bash New Product 10

Answer 1

Answer d)

Now Nash equilibrium should be < bash new product, price war>

Now when Samsung choose accomodating, best strategy for apple is to enter on large scale,

When Samsung selects price war, apple should select bash, for which the payoff x should be at least greater than 9

So x>9.

similarly when apple selects bash , then Samsung should go for price war, which is when y>45

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