Chapter 15 - Oligopoly and Antitrust Policy / Chapter 20 - Game Theory, Strategic Decision Making, and Behavioral Economics -- Initial Post Due Wednesday -- 2 Comments Due Friday1) Define Cartel and give an example.2) Thelma and Louise are being charged for a murder/robbery. They are separated by police and interrogated. They are given the choice to confess or notto confess. The payoff matrix below identifies the years that they will each spend in jail, for the various outcomes.LouiseConfessDon't ConfessWalmartConfessHigh Price10,10Low Price15,2Thelmaa. Identify the Dominant Strategy for either player, or state that there isn't one. Remember, a "Strategy" is the players move. In this example, state"Confess" or "Don't Confess" for each player, not the payoff.b. Identify the Nash Equilibrium.3) Amazon and Target both sell the new Xbox, and have a choice whether to charge a high price or a low price. The payoff matrix identifies the profiteither store can expect to make (in millions of dollars).Don't Confessa. Identify the Dominant Strategy for either player, or write "none" if there isn't one,b. Identify the Nash Equilibrium.2,15Amazon3,3High PriceLow Price333,65,52,84,3

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- Initial Post. Due Wednesday -- 2 Comments Due Friday

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.9P

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1) Define Cartel and give an example. 2) Thelma and Louise are being charged for a murder/robbery. They are separated by police and interrogated. They are given the choice to confess or not to confess. The payoff matrix below identifies the years that they will each spend in jail, for the various outcomes. Louise Confess Don't Confess Confess 10,10 15,2 Thelma Don't Confess 2,15 3,3 a. Identify the Dominant Strategy for either player, or state that there isn't one. Remember, a "Strategy" is the players move. In this example, state "Confess" or "Don't Confess" for each player, not the payoff. b. Identify the Nash Equilibrium.
5. To advertise or not to advertise Suppose that two firms, Lucky Bird and Full Coop, are the only sellers of seitan buffalo wings in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise: Lucky Bird Full Coop Advertise Advertise 9,9 Doesn't Advertise 3, 15 Doesn't Advertise 15,3 11, 11 For example, the lower left cell of the matrix shows that if Full Coop advertises and Lucky Bird does not advertise, Full Coop will make a profit of $15 million, and Lucky Bird will make a profit of $3 million. Assume this is a simultaneous game and that Lucky Bird and Full Coop are both profit- maximizing firms. If Lucky Bird chooses to advertise, it will earn a profit of S advertise. If Lucky Bird chooses not to advertise, it will earn a profit of s not advertise. million if Full Coop advertises and a profit of If Full Coop advertises, Lucky Bird makes a higher profit if it chooses…
4. Duopoly game Consider a duopoly, where each firm may choose among three strategies: zero, small, or large levels of output. The normal-form payoff matrix, which shows profits, is as follows: Output of firm A Zero Small Large Zero 0, 0 1500, 0 2000, 0 Output of firm B Small 0, 1500 1300, 1300 1400, 800 Large 0, 2000 800, 1400 500, 500 1) The protocol for this game is sequential: firm A moves first, then firm B, and the game ends. a) Find the "subgame-perfect equilibrium” (i.e. the outcome, assuming that the players choose rationally when it is their turn). Is there a first-mover or last-mover advantage? b) c) Is the solution efficient for the two firms together (i.e. is combined profit maximized)? 2) Now change the game: firm A moves first, then firm B moves, then A can revise its own decision, and the game ends (so A has both the first move and the last move). a) Find the subgame-perfect equilibrium. b) Is the solution efficient for the two firms? c) Does firm A benefit more than in…
6. There are 2 players who have to decide how to split one dollar. The bargaining process works as follows. Players simultaneously announce the share they would like to receive $₁ and $2, with 0 ≤ $1, S2 ≤ 1. If $1 + $2 ≤ 1, then the players receive the shares they named and if 8₁ + 82 > 1, then both players fail to achieve an agreement and receive zero. Which of the following strategy profiles is a pure strategy Nash equilibrium? O a) (0.3, 0.7); Ob) (0.5, 0.5); O c) (1.0, 1.0); Od) All of the above
2. Consider the following game table: Rowena Top Middle Bottom North 4, 3,5 3 Colin South 2 2, 3,4 East 3, 1 2,3 4,2 a. Complete the payoffs of the game table above so that Colin has a dominant strategy. State which strategy is dominant and explain why. (Note: There are many equally correct answers.) Complete the payoffs of the game table above so that neither player has a dominant strategy, but also so that each player does have a dominated strategy. State which strategies are dominated and explain why. (Again, there are many equally correct answers.) b.
5) The following set of (extensive form) games represent two firms who are attempting to form a cartel. The firms are called "A" and "B". The moves each can make are "Increase output" (1 ) and "don't increase output"(X). The first game (shown below) represents their behavior in a single period where they act simultaneously, unaware of what their opponent is doing. Nash Equilibrium (NE) A: В: A A: 3 A: 1 A: 4 A: 2 B: 3 B: 4 B: 1 B: 2 a. Solve the game by the Rollback (backward induction) method by identifying the dominant strategies (the ones that the players choose), and circle the Nash Equilibrium (for the entire game) and write it above the starting node.
7. Solving for dominant strategies and the Nash equilibrium Suppose Ethan and Cadence are playing a game that requires both to simultaneously choose an action: Up or Down. The payoff matrix that follows shows the earnings of each person as a function of both of their choices. For example, the upper-right cell shows that if Ethan chooses Up and Cadence chooses Down, Ethan will receive a payoff of 6 and Cadence will receive a payoff of 4. Ethan Up Down Cadence Up 4,3 6, 7 Down 6, 4 7,6 In this game, the only dominant strategy is for to choose The outcome reflecting the unique Nash equilibrium in this game is as follows: Ethan chooses and Cadence chooses
t 0886951] Two firms are competing in a market by simultaneously deciding the quality of their manufactured product. The payoff matrix for this competition is depicted in the image. Firm 1 This game can be solved by deleting dominated strategies. Use this tactic to identify all pure-strategy Nash equilibria in this game. Low Medium High 53 54 66 Low A. Firm 1 chooses high and Firm 2 chooses high. 25 34 43 B. Firm 1 chooses low and Firm 2 chooses high. 43 68 77 C. Firm 1 chooses medium and Firm 2 chooses medium. Firm 2 Medium D. Firm 1 chooses medium and Firm 2 chooses low. 12 45 E. Firm 1 chooses low and Firm 2 chooses low. 74 96 89 F. Firm 1 chooses high and Firm 2 chooses low. High G. Firm 1 chooses medium and Firm 2 chooses high. 39 48 H. Firm 1 chooses low and Firm 2 chooses medium. I. Firm 1 chooses high and Firm 2 chooses medium. 50 21
tory Bookmarks Profiles Quiz: Module 5 Qu x com/courses/111015/quizzes/852942/take To 9 7 C Tab Window Help Course Modules: Ex Topic: Planet Mon x | For the remaining questions consider two gas stations competing as an oligopoly. There are the only two gas stations in a small town. Each week they must simultaneously display their prices choosing between a high price and a low price. The payoff matrix below displays the weekly profits earned by the gas stations if they choose the various prices. Shell Decisions tv High Price Low Price Low Price NIDZA O V High Price S: $5,000 C: $5,500 (a) If Shell knows Chevron will choose the HIGH PRICE, what price should Shell choose? Low Price S: $7,500 C: $1,500 (b) If Shell knows Chevron will choose the LOW PRICE, what price should Shell choose? Low Price Aa Chevron Decisions (c) Does Shell have a dominant strategy? If so, what is it? Their dominant strategy is to Q Search Securify Module 5 Practice. x | Module 5 Lecture X (d) If Chevron knows…
8. Suppose there are two firms (Fr and F2) producing identical product competing for 20 market share and each of which would like to dominate the other, if possible. They faced a choice between defending and cooperating. When either defends or bou cooperate, neither is able to dominate the other. Assuming these preferences are reflected in their profit pay-offs. If both the players choice to defend, their profit will be 1.500 each. When one Firm defends and the other cooperates their profit level will be 5.000 an 1.000 respectively. Similarly, when both cooperate they end up with profit level of 3.000 each. With this in mind: a. Represent the above game in normal form/strategic form. b. Identify the dominant strategy for both firms and the dominant strategy equilibrium. c. Is the above equilibrium Nash equilibrium? Is it Pareto efficient allocation? Why? d. Assuming the game is one-shoot game and Firm 1 moves first represent it in extended form
Keep Quota Firm Y Cheat 2 Keep X profit $25,000 X profit--$2,000 Quota Y profit $25,000 Y profit - $50,000 Firm X 3 4 X profit $50,000 X profit - $0 Cheat Y profit --$2,000 Y profit -$0 5. (17) Consider the payoff matrix above for a Cartel Game. Each firm has to decide to stick to the agreement or cheat. They start out by both keeping the quota. This is a repeated game (with no end to the game so these are the profits for only one given year but will continue infinitely into the future) and firms can communicate with one another. Each firm must decide each year to either keep the quota or cheat and earn the profit in the equilibrium box for that year (and subsequent years). In this situation will firms have an incentive to cheat? Explain why or why not.
Megan and Martha own competing hair salons that are in the same neighborhood. They are both considering offering their clients discounts in order to increase business. The payoff matrix shows their yearly incomes in thousands of dollars if they offer and do not offer discounts to their customers. If Megan offers a discount, Martha should ________. If Megan offers no discount, Martha should ________. A-not discount; discount. B-not discount; not discount. C-discount; not discount D-discount; discount. E-indeterminate