Chapter 13A. Additional Game Theory Applications

Additional Game Theory ApplicationsChapter 13ACopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.A One-Time Game: Strategy and EquilibriumA one-time gameA simultaneous gameA positive-sum gameZero-sum gameNegative-sum gameA firm’s dominant strategyLO10A One-Time Game: Strategies and EquilibriumNash equilibriumOutcome from which neither firm wants to deviateCurrent strategy viewed as optimalStable and persistent outcomeLO10Dramco’s price strategyChipco’s price strategyABCD$11$11$5$20$17$17$20$5InternationalInternationalNationalNational2 competitors2 price strategiesEach strategy has a payoff matrixIndependent actions stimulate a responseA One-Time GameLO10Credible and Empty ThreatsCredible threatsThreat that is believable by the other firmCan establish collusive agreementsA strong enforcer can prevent cheatingCan generate higher profitsMay be countered with threat by rivalEmpty threatsA threat that is not believable by rivalLO10Repeated GamesRepeated game is a game that recursMay cooperate and not compete stronglyRival reciprocatesExamplesPepsi and CokeBoeing and AirbusWalmart and TargetNike and AdidasLO10Repeated GamesThirstQ’s advertising strategyABCD$10$10$8$16$12$12$16$8Promo budgetPromo budgetNormal budgetNormal budget2Cool’s advertising strategyThirstQ’s advertising strategyABCD$11$11$10$14$13$13$15$10Promo budgetPromo budgetNormal budgetNormal budget2Cool’s advertising strategyLO10First-Mover AdvantagesSequential gameFirms apply strategies sequentiallyFinal outcome depends on who moved firstRival must respondFirst-mover advantageAdvantages for the firm that is firstMay be better preparedMay preempt entry of rivalLO10Big Box strategiesHuge Box strategiesABCD-$5-$5$0$12$0$0$12$0BuildBuildDon’t buildDon’t buildLO10First-Mover Advantages