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Exam 13: Game Theory and Competitive Strategy

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Question 41

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Dale and Terry are racing automobiles around a track. Currently, Terry is in the lead. However, Dale has a faster car and is just behind Terry. The racers' strategies and payoffs are presented in the table below. The goal of the drivers is to do as well as possible in the race. There are a total of 43 cars on the track. Does either player have a dominant strategy? Does the game have a Nash equilibrium? What is the maximin strategy of each player in the game?

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Neither player has a dominant strategy, ...

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Question 42

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For infinitely repeated games in which the players follow a tit-for-tat strategy, which one of the following outcomes is NOT possible?

A) The players cooperate with one another until someone decides to not cooperate, and then the other players will not cooperate for some period of time.
B) There can be dominant strategies.
C) If the information about another player's action is limited, then some cooperative actions may be incorrectly interpreted as "not cooperate."
D) All of the above are possible outcomes.

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Question 43

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Scenario 13.9 Consider the following game: Two firms are situated next to a lake, and it costs each firm $1,500 per period to use filters that avoid polluting the lake. However, each firm must use the lake's water in production, so it is also costly to have a polluted lake. The cost to each firm of dealing with water from a polluted lake is $1,000 times the number of polluting firms. -Refer to Scenario 13.9. The equilibrium of this game, if played only once, is that:

Scenario 13.17 Consider the entry-deterrence game below. The potential entrant would have to spend some amount in sunk costs to enter the market. -If the game in Scenario 13.17 were to be infinitely repeated, waging a price war might be a rational strategy:

Two firms at the St. Louis airport have franchises to carry passengers to and from hotels in downtown St. Louis. These two firms, Metro Limo and Urban Limo, operate nine passenger vans. These duopolists cannot compete with price, but they can compete through advertising. Their payoff matrix is below: a. Does each firm have a dominant strategy? If so, explain and what that strategy is. b. What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the payoff matrix.

In a Nash equilibrium,

What does it mean to say that a game is in "extensive form"?

Which of the following is NOT a key component of every game?

Scenario 13.12 Consider the game below: -Playing the game in Scenario 13.12 by using a maximin strategy would:

In the game in Scenario 13.14, each firm has a strategy that would not be chosen under any circumstances. This strategy is:

Joanna has a credit card account with Card Bank. Card Bank's available strategies are tp raise Joanna's credit card interest rate or do nothing. Joanna's available strategies are to transfer her Card Bank account balance to another creditor or do nothing. If Card Bank raises Joanna's interest rate and Joanna does nothing, Card Bank increases profits by $1,000 while Joanna receives -$1,000. If Card Bank raises Joanna's interest rate and Joanna transfers her account to another creditor, Card Bank receives -$300 while Joanna receives -$100. If Card Bank does nothing and Joanna does nothing, each player receives $0. If Card Bank does nothing and Joanna transfers her account to another creditor, Card Bank receives -$300 while Joanna receives -$150. Diagram the game tree for this sequential game. Indicate any Nash equilibria.

Scenario 13.17 Consider the entry-deterrence game below. The potential entrant would have to spend some amount in sunk costs to enter the market. -In the game in Scenario 13.17, who moves first?

Scenario 13.13 Consider the game below: -Playing the game in Scenario 13.13 sequentially would:

Consider the following output-choice game for two firms: What is the outcome of the game if both firms use maximin strategies?

Scenario 13.8 Consider the following game: -In game in Scenario 13.8, what is the Nash equilibrium?

When, in the game in Scenario 13.14, the strategy that would not be chosen under any circumstances is removed, what is left is a:

Refer to Scenario 13.1. At your negotiated price the producer surplus is:

Use the following statements to answer the question: I. Consider the problem of negotiating the price of a rug that costs $100 to make. If there are two buyers (one with a maximum willingness-to-pay of $200 and one with a maximum willingness-to-pay of $250) , then the situation is no longer a constant sum game. II) The likely outcome from the game described in statement I is that the second buyer will bid a price slightly above $200 to win the rug.

Two firms in a local market compete in the manufacture of cyberwidgets. Each firm must decide if it will offer a warranty or not. The payoffs of each firm's strategy are a function of their competitor as well. The payoff matrix is presented below. If firm #1 announces they will offer a warranty regardless of what firm #2 does, is this a credible threat? Why or why not?

Joe's Imports is currently the only dealer for imported Sporto autos on the East Coast, but Fred's Autos may enter the import market and start selling Sporto cars in the East Coast market during the coming year. Joe's Imports can pay the Sporto manufacturer for exclusive East Coast marketing rights, which would deter the entry of Fred's Autos into the market. The payoffs from the possible actions are measured in millions of dollars per year, and the possible outcomes of the sequential entry game are summarized in the following matrix: What is the equilibrium outcome from this sequential entry game?