Our example is a game in which two firms compete through their choice of locations. Suppose that two firms A and B are each planning to open a store in one of six towns located along six consecutive exits on a highway. We can represent the arrangement of these towns using a six-node graph as in Figure 1 Now, based on leasing agreements, Firm 1 has the option of opening its store in any of towns 1, 3, or 5, while Firm 2 has the option of opening its store in any of towns 2, 4, or 6. These decisions will be executed simultaneously. Once the two stores are opened, customers from the towns will go to the store that is closer to them. So for example, if Firm A open its store in town 3 and Firm B opens its store in town 2, then the store in town 2 will attract customers from 1 and 2, while the store in town 3 will attract customers from 3, 4, 5, and 6. If we assume that the towns contain an equal number of customers, and that payoffs are directly proportional to the number of customers, this would result in a payoff of 4 for Firm A and 2 for Firm B, since Firm A claims customers from 4 towns while Firm 2 claims customers from the remaining 2 towns. Write down the payoff table for this Solve the game by eliminating dominated Find the Nash equilibria for the game
- Exercise 7: The facility location game. Our example is a game in which two firms compete through their
choice of locations. Suppose that two firms A and B are each planning to open a store in one of six towns located along six consecutive exits on a highway. We can represent the arrangement of these towns
using a six-node graph as in Figure 1 Now, based on leasing agreements, Firm 1 has the option of opening its store in any of towns 1, 3, or 5, while Firm 2 has the option of opening its store in any of towns 2, 4, or 6. These decisions will be executed simultaneously. Once the two stores are opened, customers from the towns will go to the store that is closer to them. So for example, if Firm A open its store in town 3 and Firm B opens its store in town 2, then the store in town 2 will attract customers from 1 and 2, while the store in town 3 will attract customers from 3, 4, 5, and 6. If we assume that the towns contain an equal number of customers, and that payoffs are directly proportional to the number of customers, this would result in a payoff of 4 for Firm A and 2 for Firm B, since Firm A claims customers from 4 towns while Firm 2 claims customers from the remaining 2 towns.
- Write down the payoff table for this
- Solve the game by eliminating dominated
- Find the Nash equilibria for the game
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