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 £1million.
Answer the following questions:
a)Please draw the payoff matrix for the game
b)What is the outcome of this game? What payoff will each firm earn?
c)What is the reasoning that you have followed in order to arrive at this outcome?
d)Is this a Prisoner's Dilemma? Why or why not?
e)Suppose that this game is played sequentially instead of simultaneously and that you decide first. Draw the game tree of this game. What is the equilibrium of this sequential game? How did you arrive to this conclusion?
Trending nowThis is a popular solution!
Step by stepSolved in 4 steps
- Do not use Aiarrow_forwardDelta Depot Multiple Colors One Color $25, $115 $60, $55 Gamma Enterprises Multiple Colors $90, $95 One Color $105, $65 Consider the above game where Delta Depot and Gamma Enterprises are considering whether to offer their products in a single color or multiple colors. Which of the following is true based on the solution to this game? Only Gamma Enterprises has a dominant strategy Delta would prefer an outcome where Gamma offers one color rather than multiple colors both companies have a dominant strategy the Nash equilibrium occurs where both companies offer multiple colors since they earn more profits that way.arrow_forward6. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell tablets: Padmania and Capturesque. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its tablets. Capturesque Pricing High Low High 11, 11 2, 18 Padmania Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $18 million, and Capturesque will earn a profit of $2 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms. If Padmania prices high, Capturesque will make more profit if it chooses a ▼ price, and if Padmania prices low, Capturesque will make more profit if it chooses a price. If Capturesque prices high, Padmania will make more profit if it chooses a price, and if Capturesque prices low, Padmania will make more profit if it chooses…arrow_forward
- Which of the following is the COLLUSIVE OUTPUT in the Game Theory Matrix below? * Firm B Payoff = Expected Profit ($m) High Price Low Price High Price $4m; $4m $-1m, $6m Firm A Low Price $6m; $-1m $1m, $1m Both firms choose High Price Both firms choose Low Price Firm A chooses Low Price; Firm B chooses High Price O Firm A chooses High Price; Firm B chooses Low Pricearrow_forwardConsider a market with two firms, Target and Wal-Mart, that sell CDs in their music department. Both stores must choose whether to charge a high price ($30) or a low price (s13) for the new Miley Cyrus CD. These price strategies with corresponding profits are depicted in the payoff matrix to the right. Target's profits are in red and Wal-Mart's are in blue. Target Target's dominant strategy is to pick a price of S Price = $30 Price = $13 $7,000 $2.500 Price = $30 S7,000 $15,000 Wal - Mart $15.000 $5,000 Price = $13 $2,500 $5,000 Wal-Mart's dominant strategy is to pick a price of $ The new equilibrium market wage will be and the new equilibrium market employment level will be higher unchanged lower higher lower unchangedarrow_forwardThree politicians are voting on whether to allow themselves a salary increase of$3,500per a year. If they vote in favor of a raise, then they lose some public support, costing them each$1,500 per year. The salary increase passes if two or more politicians vote in favor of it. What is this game’s Nash equilibrium (or equilibria)? Explain. There is no need to draw a payoff matrix.arrow_forward
- q13-arrow_forwardBoeing and Airbus are the two primary producers of passenger aircraft. Both firms are preparing to announce their new long-distance jets. Each firm can design their plan to maximize comfort or the number of seats. If both firms choose to maximize the same characteristic they will sell 100 planes each and if they maximize different characteristics they will each sell 150 planes each. Both firms want to maximize sales. Draw a game tree and find the equilibrium strategies and payoffs. Show your work.arrow_forwardLet's think about a traditional game theory principal agent game. In this game we have two players, Lauren and Jason Lauren will choose to invest $500 dollars with Jason If she doesn't invest the money, she keeps the $500 and Jason gets nothing If she does invest the money, then Jason has a choice-he can cooperate by investing Lauren's money and then splitting the profit of another $500. This would give Lauren $750 (her original $500 investment plus $250 of profit) and would give Jason $250. Jason's other choice is to appropriate, or to steal Lauren's money and not invest it. If he does this, Lauren ends up with nothing and Jason has the entire $500. The following diagram outlines this game. Principal Agent Game Jason (750.250) Invest appropriate 10. 500) doninve What will happen in this game? Lauren will not invest Lauren will invest and Jason will cooperate Lauren will invest and Jason will appropriate Next pagearrow_forward
- Microsoft and a smaller rival often have to select from one of two competing technologies. The rival always prefers to select the same technology as Microsoft (because compatibility is important), while Microsoft always wants to select a different technology from its rival. Describe the equilibrium of this game.arrow_forwardConsider the following game, called matching pennies, which you are playing with a friend. Each of you has a penny hidden in your hand, facing either heads up or tails up (you know which way the one in your hand is facing). On the count of “three,” you simultaneously show your pennies to each other. If the face-up side of your coin matches the face-up side of your friend’s coin, you get to keep the two pennies. If the faces do not match, your friend gets to keep the pennies. a. Construct a payoff matrix for the game. Instructions: Note that if you get to keep the two pennies, this is a gain of one penny for you and a loss of one penny for your friend. So, your payoff would 1 and your friend's would be −1. Similarly, if your friend gets to keep the two pennies, then your payoff would −1 and your friend's would be 1. When entering the payoffs in the table below, use whole penny numbers (no decimals), and if you are entering any negative numbers be sure to include a negative sign (−)…arrow_forwardConsider the following information for a static game. If you advertise and your rival advertises, you each will earn $5 million in profits. If you choose not to advertise and your rival chooses not to advertise, 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 firm that does not advertise will earn $1 million. Assuming that each player cares only about his or her own profits, the Nash equilibrium is? Explain your answer in three long paragraphs (intro body and conclusion)arrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education