1. Consider the coupon game. But suppose that instead of decisions being made simultaneously, they are made sequentially, with Firm 1 choosing first, and its choice observed by Firm 2 before Firm 2 makes its choice.
a. Draw a game tree representing this game.
b. Use backward induction to find the solution. (Remember that your solution should include both firms’ strategies, and that Firm 2’s strategy should be complete!)
2. Two duopolists produce a homogeneous product, and each has a constant average cost of 2. The firms compete by choosing the quantities ( q1 and q2 ) they produce. Market demand is given by p = 50 - 4Q,
where Q = q1 + q2 . For this question, assume that each firm is restricted to producing quantities of 3, 4 and 6 only (no other quantities are possible).
a. Suppose the firms make their choices simultaneously. Draw a payoff matrix representing this game, and find all Nash equilibria. Also find the payoffs resulting from each Nash equilibrium.
b. Suppose the two firms choose their prices sequentially, with Firm 2 observing Firm 1’s price choice before making its own choice. Draw a game tree representing this game, and use backward induction to find the solution. Also find the payoffs resulting from this solution.
1. Consider the coupon game. But suppose that instead of decisions being made simultaneously, they are made sequentially, with Firm 1 choosing first, and its choice observed by Firm 2 before Firm 2 ma...
The table below is the payoff marrix for a simple two-firm game Firms A and B are bidding on a government contract and each f's bid is not known by the other form. Each firm can bid other $14.000 or 55.000 The cost of completing the project for each firm is 53.000 The low bid firm will win the contractat its stated price the high dem wilgot nothing the two bids are equal, the two firms wil split the price...
2. Consider the coupon game from the lecture slides. (Recall that the strategy C means "print coupons", and N means "do not print coupons".) Firm 2 15, 15 Firm 25, 10 20, 20 10, 25 a. Suppose that instead of playing this game only once, the firms play it every week for 2 years (104 times). Is any outcome possible in which - at least sometimes - the firms cooperate with each other (do not print coupons)? Explain why or...
There are two firms, Cope and Peski, in an oligopolistic industry. Each firm must decide whether or not to advertise during the Super Bowl this year. The diagram below represents the matrix of expected profit payoffs for each firm depending on which of the four possible outcomes becomes reality. The first number in each cell represents the expected profit for Peski given the relevant combination of strategies for each firm. The second number in each cell represents the expected profit...
The following payoff matrix depicts two companies, Lowe's and Home Depot, in an advertising game. The companies will be playing the same game several times. Each company makes its decision without knowing what the other chooses. The payoffs for each firm represent economic profits.Imagine that at the beginning of each week, Home Depot and Lowe's play the game described in the payoff matrix above. Assume there is no known end to the game, so Home Depot and Lowe's will effectively...
2. Suppos e there are two firms in an oligopoly, Firm A both firms charge a low price, each earns and Firm B. If $2 million in profit. If both firms charge a high price, each earns $3 million in profit. If one firm charges a high price and one charges a low price, customers flock to the firm with the low price, and that firm earns $4 million in profit while the firm with the high price earns $1...
Identify the definition for each term listed below from the following list. 1. The study of how people make decisions where attaining goals depends on interactions with others. 2. A table that shows the payoffs each firm earns from every combination of firm strategies. 3. An agreement among firms to charge the same price or otherwise not to compete. 4. A strategy that is the best for a firm, no matter what strategies other firms use. 5. A situation in...
2. Consider a static game described by the following payoff matrix: LR a,1 2,6 3,0 2,c B The two numbers in each cell is the payoffs to the row player and the column player, respectively. (a) [6] Find all parameter values of a, b, and c for which the strategy profile (T, L) is a weakly dominant strategy equilibrium. (b) [6] Find all parameter values of a, b, and c for which the strategy profile (T, L) is a pure...
Problem 2.(20 points) Consider the following game: In the first step, Alice has two $10 bills and can take one of the following two actions: (i) she can give S20 to Bob or (ii) she can give one of the S10 bills to Bob. All the money will be used to buy popcorns before the movie they will see. Each one dollar of popcorn gives one unit of payoff for the player who buys it. In the second step, they...
Problem 2.(20 points) Consider the following game: In the first step, Alice has two $10 bills and can take one of the following two actions: (i) she can give S20 to Bob or (ii) she can give one of the S10 bills to Bob. All the money will be used to buy popcorns before the movie they will see. Each one dollar of popcorn gives one unit of payoff for the player who buys it. In the second step, they...
Consider two firms 1 and 2 engaging into the following one-shot game: if firm 1 advertises and firm 2 does not, firm 1 will make $20 million in profits and firm 2 will make $6 million. If firm 2 advertises and firm 1 does not, firm 1 will make $2 million and firm 2 will make $6 million. If firm 1 advertises and firm 2 advertises, each firm earns $10 million. If neither firm advertises, firm 2 will make $8...