Laurel and Janet are competitors in a local market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $5,000. If neither of them advertise, each will earn a profit of $12,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $10,000 and the other will earn $2,000. In this version of the this game, if the game is played only once, then the Nash is a)for both to advertise. b)for both not to advertise. a only a and b Ob only none
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- Jones TV and Smith TV are the only two stores in your town that sell flat panel TV sets. First, Jones will choose whether to charge high prices or low prices. Smith will see Jones's decision and then choose high or low prices. If they both choose High, each earns $10,000. If they both choose Low, each earns $8,000. If one chooses High and the other chooses Low, the one that chose High earns $6,000 and the one that chose Low earns $14,000. a. Draw the game tree. Use backward induction to solve this game. b. Suppose Smith goes to Jones and promises to choose High if Jones chooses High. Is this a credible promise? c. Now suppose Jones starts a new policy that says it will always match or beat Smith's price. It advertises the new policy heavily and so must choose Low if Smith chooses Low. So the game now has the following structure. First, Jones chooses High or Low. Second, Smith chooses High or Low. Third, if Jones has chosen High and Smith has chosen Low, Jones meets Smith's price and…Emily and Brooklyn are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $5000. If they both advertise on radio, each will earn a profit of $7000. If neither advertises at all, each will earn a profit of $10,000. If one advertises on TV and the other advertises on radio, then the one advertising on TV will earn $8000 and the other will earn $3000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $15,000 and the other will earn $2000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $12,000 and the other will earn $4000. If both follow their dominant strategy, what will Emily do and what will she earn? advertise on radio and earn $7000 not advertise and earn $10,000 advertise on TV and earn $5000 advertise on TV and earn $15,000Imagine two competitor firms are deciding whether to advertise their products or not. Advertising costs the firms money, but it also increases sales. If only one of the two firms advertises, that firm will take almost all of the sales. If both firms advertise, or both firms do not advertise, then they will have about half the sales each. Here are their payoffs. Firm A Advertise Don't advertise Advertise 20 20 0 80 * Firm B Don't Advertise 80 0 50 50 a) Find any Nash equilibria in the game. b) Discuss and explain the Pareto-optimality of any equilibria you find. c) Discuss how you might achieve stable Pareto-optimality.
- . OPEC, the Organization of Petroleum Exporting Countries, was founded in 1969. Their original objective was to form a cartel to increase the price that they receive for their oil exports. Create a prisoner’s dilemma type game for two large members of OPEC (e.g. Saudi Arabia and Indonesia). Create numbers, where payoffs are total annual oil export revenues for each of these two countries. Verbally explain how you got your numbers. Find the Nash equilibrium. Based on this model, what strategy is in the oil exporters’ best interest (Nash or otherwise)? How do they make it happen? Create another prisoner’s dilemmamodel for all of OPEC on one side, and all non OPEC oil exporting nations on the other side. Create numbers, where payoffs are total annual oil export revenues for each of the two sides. Verbally explain how you created your numbers. Also create your numbers applying the fact that OPEC’s total production capacity is greater than total non OPEC exports…Suppose that Fizzo and Pop Hop are the only two firms that sell orange soda. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Рop Hop Advertise Doesn't Advertise Advertise 8, 8 15, 2 Fizzo Doesn't Advertise 2, 15 11, 11 For example, the upper right cell shows that if Fizzo advertises and Pop Hop doesn't advertise, Fizzo will make a profit of $15 million, and Pop Hop will make a profit of $2 million. Assume this is a simultaneous game and that Fizzo and Pop Hop are both profit-maximizing firms. If Fizzo decides to advertise, it will earn a profit of $ million if Pop Hop advertises and a profit of $ million if Pop Hop does not advertise. If Fizzo decides not to advertise, it will earn a profit of $ million if Pop Hop advertises and a profit of $ million if Pop Hop does not advertise. If Pop Hop advertises, Fizzo makes a higher profit if it chooses If Pop Hop doesn't advertise, Fizzo makes a higher…To advertise or not to advertise Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertise Doesn't Advertise Creamland Advertise 10, 10 18, 2 Doesn't Advertise 2, 18 11, 11 For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $18 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of _________ million if Dairy King advertises and a profit of ________ million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of __________ million if Dairy King advertises and a profit of _________…
- 8. To advertise or not to advertise Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Creamland Dairy King Advertises Doesn't Advertise 9,9 Doesn't Advertise 3, 15 Advertises 15, 3 11, 11 For example, the upper-right cell shows that, if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $15 million, and Dairy King will make a profit of $3 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of $ not advertise. If Creamland decides not to advertise, it will earn a profit of $ does not advertise. million if Dairy King advertises and a profit of $ If Dairy King advertises, Creamland makes a higher profit if it chooses million if Dairy King advertises and a profit of $…Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertise DoesntAdvertise Advertise 10, 10 18, 2 Creamland Doesn't Advertise 2, 18 11, 11 For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $18 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of $ million if Dairy King advertises and a profit of $ million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of $ million if Dairy King advertises and a profit of $ million if Dairy King does not advertise. If Dairy King advertises, Creamland makes a higher profit if it…Use the payoff matrix below to answer the next two questions. a. b. C. d. Topco does not advertise a. b. Topco advertises C. d. Acme does not advertise Both firms earn profits of $50 million. 30. Suppose Acme and Topco must choose whether or not to advertise without knowing what the other will do. In the Nash equilibrium: Topco earns profits of $60 million and Acme earns profits of $30 million. Acme advertises Topco earns profits of $30 million and Acme earns profits of $60 million Both firms earn profits of $40 million. 31. Which strategies maximize Acme's and Topco's combined profit? Neither advertises neither Acme nor Topco chooses to advertise. both Acme and Topco choose to advertise. Acme advertises, but Topco does not. Topco advertises, but Acme does not. Both advertise Acme advertises, but Topco does not Topco advertises, but Acme does not
- A country’s market for new motor vehicles is dominated completely by two firms, Fastcars Ltd and Slowcars Ltd. Market revenue is fixed at $10 billion. Each firm can choose whether to advertise. Advertising costs $1 billion for each firm that advertises. If one firm advertises and the other does not, then the firm that advertises receives 100% of market revenue and pays for its advertising. If both firms advertise, they split the market revenue 50:50 and pay for their respective advertising. If neither advertises, they split the market revenue 50:50 but without the expense of advertising. a) What strategy would you advise that Fastcars Ltd should follow? b) What would you predict will be the strategy chosen by each firm? c) Is there an outcome that would make both firms better off? In case you find that there is such an outcome, is it achievable?1. Consider an industry with inverse demand given by p = 8 – q, where p is the price, and q is the quantity. There is one incumbent firm and one potential entrant. In the first stage of the game, the incumbent chooses its quantity qi. In the second stage, the potential entrant observes qi and chooses its quantity Ce. The potential entrant can also decide not to enter the market. The production technology of both firms are represented by the cost function C = 2q. To enter industry implies a fixed entry cost of F. (a) Find the equilibrium of the game, assuming that the potential entrant enters the industry. What are the profits of firms? (b) Assume that entry is not blockaded. For which values of F does the incumbent firm prefer to deter entry? (c) For which values of F, entry blockaded?q52 If you advertise and your rival advertises, you each will earn 14 million in profits. If neither of you advertises, you will each earn 20 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn 10 million and the non-advertising firm will earn 16 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is a. for each firm to advertise. b. for the other firm to advertise and your firm not to advertise. c. for your firm to advertise and the other not to advertise. d. for neither firm to advertise.
