EBK MICROECONOMICS
2nd Edition
ISBN: 9780134458496
Author: List
Publisher: VST
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Question
Chapter 13, Problem 11Q
To determine
Meaning of first mover advantage and the importance of commitment in games with first mover advantage.
(a)
To determine
Existence of first mover advantage in a game of rock, paper, scissors.
(b)
To determine
Existence of first mover advantage in a market-entrance situation.
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Students have asked these similar questions
Rock-paper-scissors is a game in which players typically use mixed strategies. Can you think of other examples? What are some of the characteristics of games that usually involve playing mixed strategies?
Consider the following game where two players have to decide if they want to buy a movie ticket or a baseball ticket. They have the highest payoffs when they both buy tickets to the same activity, but must decide simultaneously what to buy without knowing what the other person will do.
a. Does either player have a dominant strategy?
b. How many equilibria does this game have?
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1. Two electricity firms compete in the same market and are deciding their level of advertising
in order to increase customers and profits. The following matrix shows the profits (in
millions) according to the strategy chosen:
Firm
1
Strategies
Low
Advertising
Aggressive
Advertising
Firm 2
Low
Advertising
15, 15
20, -2
Aggressive
Advertising
-2, 20
5,5
a. Identify the one-shot Nash equilibrium. Comment.
b. Suppose the players know this game will be repeated exactly 10 times. Can they achieve
payoffs that are better than the one-shot Nash equilibrium? Explain.
c. Suppose this game is infinitely repeated and the interest rate is 5%. Can the players
achieve the collusive outcome? Explain.
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