Exam 13: Game Theory and Competitive Strategy

Wal-Mart was one of the most successful firms of the 1970s and 1980s. Much of Wal-Mart's success can be credited to its expansion strategy: they rushed to open the first discount store in small towns that could only support one discount store. In the language of game theory:

Your economics professor has decided that your class will not be graded on a curve but on an absolute scale. Therefore, it is possible for every student in the class to get an "A." Your grade will not depend in any way on your classmates' performance. Based on this information, you decide that you should study economics three hours each day, regardless of what your classmates do. In the language of game theory, your decision to study three hours each day is:

Which of the following statements represents a key point about strategic decision making?

What kind of game is shown in Scenario 13.13?

As defined by Thomas Schelling, a "strategic move" is

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

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

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. -A "mixed strategy" equilibrium means that

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 pay-offs of each firm's strategy is a function of their competitor as well. The pay-off 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?

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 pay-offs 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?

Consider the Matching Pennies game: Suppose Player A always uses a pure strategy that selects heads. What is Player B's optimal response to this pure strategy?

What is the dominant strategy for bidders in an English oral auction?

Scenario 13.2: Consider the following game: -Which of the following is true about the game in Scenario 13.2?

Nash equilibria are stable because

In a Nash equilibrium,

Which of the following conditions, if present, is sufficient to make a game cooperative?

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. If this game is repeated over an infinite or uncertain horizon, the most likely observed behavior will be that

Use the following statements to answer this question: I. If mixed strategies are allowed, every game has at least one Nash equilibrium. II. The maximin strategy is optimal in the game of "matching pennies."

To deter a potential entrant, an existing firm in a market may threaten to sharply increase production so that the entrant will be left with a small share of the market. This may be a credible threat if:

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?