Game theory: An example of the prisoner's dilemma in the real world is when two competitors are battling it out in the marketplace. Often, many sectors of the economy have two main rivals. There can be rivalry such as between du and Etisalat in Telecommunications services, Coca-Cola and Pepsi-Cola in soft drinks. Suppose du plans to cut its price. Etisalat will likely follow suit to retain its market share. This may end up with low profits for both companies. A price drop by either company may thus be construed as defecting since it breaks an implicit agreement to keep prices high and maximize profits. Thus, if du drops its price but Etisalat continues to keep prices high, du is defecting, while Etisalat is cooperating (by sticking to the spirit of the implicit agreement). In this scenario, du may win market share and earn incremental profits by selling more.

While game theory predicts non-cooperative behavior for a one-shot Prisoner's dilemma. By repeating the game, say 20 rounds, it becomes possible to adopt more complex strategies that allow cooperative play as a Nash Equilibrium in at least some rounds of the game. True False

Suppose there are only two firms that sell digital cameras, Picturesque and Capturemania. 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 cameras. Capturemania Pricing High Low High 9, 9 2, 15 Picturesque Pricing Low 15, 2 8, 8 For example, the lower, left cell shows that if Picturesque prices low and Capturemania prices high, Picturesque will earn a profit of $15 million and Capturemania will earn a profit of $2 mllion. Assume this is a simultaneous game and that Picturesque and Capturemania are both profit-maximizing firms. If Picturesque prices high, Capturemania will make more profit if it chooses a price, and if Picturesque prices low, Capturemania will make more profit if it chooses a price. If Capturemania prices high, Picturesque will make more profit if it chooses a price, and if Capturemania prices low, Picturesque will make more profit if it chooses a price. Considering all…

Imagine United Airlines deciding independently to reduce fares on its flights. Other competing airlines quickly matched the fare cuts. These actions might be interpreted as: a cooperative game. a competitive game. a constant sum game. a noncooperative game.

Consider the following information for a simultaneous-move game: two discount stores (megastore and superstore) are interested in expanding their market share through advertising. The table below depicts the profits of both stores with and without advertising. Payoffs for Megastore are in bold A Nash Equilibrium     Superstore       Advertise Don't Advertise Megastore Advertise $95, $80 $305, $55   Don't Advertise $65, $285 $165, $115 If firms could collude, then it would be optimal. ‍for the Megastore to advertise and for the Superstore to advertise ‍for the Megastore to advertise and for the Superstore not to advertise ‍for the Megastore to not advertise and for the Superstore to advertise ‍for the Megastore to not advertise and for the Superstore to not advertise

Who first established the basic principles of game theory? Select one: a. Nash b. Bernoulli с. Кеynes d. Savage e. von Neumann Who developed a duopoly model to show how two firms compete in the price of a good they supply? Select one: a. Cournot b. Keynes c. Bertrand d. Robinson e. Chamberlain What pair provided the most complete formula for options pricing? Select one: a. von-Neumann-Morgenstern b. Black-Scholes c. Fischer Black d. Cournot-Nash e. Modigliani-Miller

Explain  how the Prisoners' Dilemma game can be used as a way to describe the market structure of Oligopoly.

In a small town there are two pizza restaurants . If neither restaurant advertises, its revenue will not change. If only one firm advertises, the firm that advertises will double its revenue and the firm that doesn't advertise will see a decrease in its revenue, but if both firms advertise, their revenue will not change. What outcome would be predicted by game theory in this market? Both restaurants will advertise. Game theory would predict chat sometimes one restaurant would advertise, and the rest of the time both will advertise. Neither restaurant will advertise Game theory is only a theory and cannot predict real-world events. One restaurant will advertise.