Exam 13: Game Theory and Competitive Strategy

The two largest auto manufacturers, Toyota and GM, have experimented with hydrogen powered cars in the past, and they are currently considering the decision to introduce a hydrogen powered car into the commercial automobile market. The payoffs from the possible actions are measured in millions of dollars per year, and the possible outcomes are summarized in the following game matrix: If both firms enter the market simultaneously, what is the Nash equilibrium?

The two largest auto manufacturers, Toyota and GM, have experimented with hydrogen powered cars in the past, and they are currently considering the decision to introduce a hydrogen powered car into the commercial automobile market. The payoffs from the possible actions are measured in millions of dollars per year, and the possible outcomes are summarized in the following game matrix: Suppose the Japanese government provides a $15 million subsidy to Toyota if the company delivers a hydrogen powered auto (regardless of GM's action). What is the Nash equilibrium based on the subsidized payoffs?

Scenario 13.5 Consider the following game: -Which of the following is true regarding the game in Scenario 13.5?

Scenario 13.11 Consider the game below: -What kind of game is shown in Scenario 13.11?

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. -What is true about dominant strategies in the game in Scenario 13.9?

G.C. Donovan Company is a large pharmaceutical company located in the U.S., but with worldwide sales. Donovan has recently developed two new medications that have been licensed for sale in European Union countries. One medication is an over-the-counter cold preparation that effectively eliminates all cold symptoms, while the other is an antibiotic that is effective against drug resistant bacteria. A European firm, Demtech Limited, has developed drugs that are similar to Donovan's and will be ready for the European market at approximately the same time. Liability concerns make it unlikely that either firm will choose to market both new drugs at this time. Both firms do plan to market one of the drugs this year. Donovan's managers consider their own lack of reputation among European physicians to be an important obstacle in the antibiotic market. Consequently, Donovan feels more comfortable marketing the cold preparation. Demtech, on the other hand, has an excellent reputation among physicians but little experience in over-the-counter drugs so that Demtech's competitive advantage is with the antibiotic. Should Demtech choose to market the cold remedy, it believes that its sales will increase if Donovan also enters the cold remedy market and advertises heavily. Similarly, Donovan anticipates that its sales in the antibiotic market would be enhanced if Demtech produces antibiotics, given Demtech's excellent reputation among physicians. In short, each firm believes that there are circumstances under which participation by the other firm will complement rather than compete with the firm's own sales. Profits in millions of dollars are given in the payoff matrix below. a. Given the table above, does either firm have a dominant strategy? Is there a Nash equilibrium? (Explain the difference between a Nash equilibrium and a dominant strategy.) b. Pharmaceutical firms within the EU are attempting to organize a risk pool that would share liability risks for new drugs. Since Donovan and Demtech are among the largest pharmaceutical companies operating in Europe, the benefits of the risk pool depend upon the participation of the other firm. Increased profits achieved through reduced risk liability (measured in millions of dollars) are shown in the payoff matrix below. Does either firm have an incentive to use participation in the risk pool as a bargaining device in the drug-marketing decision? If so, what would be the nature of the bargain? How credible is the firm's bargaining position? What could be done to make the bargaining position more credible?

Scenario 13.14 Consider the game below: -What is true of equilibrium in the game in Scenario 13.14?

Scenario 13.12 Consider the game below: -Playing the game in Scenario 13.12 sequentially would:

Consider the Matching Pennies game: Suppose both players use maximin strategies for this game. Is there a clear equilibrium outcome to the game in this case?

A "Credible Threat":

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:

Refer to Scenario 13.17. If the Incumbent Monopoly installed excess capacity in advance of the Potential Entrant's appearance on the scene, and this excess capacity had a cost of $X, it would reduce by $X the Incumbent Monopoly's payoffs in the:

Scenario 13.7 Consider the game below about funding and construction of a dam to protect a 1,000-person town. Contributions to the Dam Fund, once made, cannot be recovered, and all citizens must contribute $1,000 to the dam in order for it to be built. The dam, if built, is worth $70,000 to each citizen. -In the game in Scenario 13.7, the strategy pair that pays:

Some popular reality television programs follow people who buy the contents of abandoned storage lockers at public auctions. In most cases, several storage lockers are sold in sequence during a particular auction. Occasionally, one of the buyers will purposefully bid much more than the expected value of a particular storage locker in order to intimidate the other bidders. What is a plausible explanation for these excessive bids?

Scenario 13.13 Consider the game below: -What kind of game is shown in Scenario 13.13?

Consider the following output-choice game for two firms: What is Firm 2's first-mover advantage in a sequential game relative to a simultaneous game?

Scenario 13.15 Consider the pricing game below: -Refer to Scenario 13.15. If the firms price simultaneously, equilibrium would be:

Scenario 13.16 Consider the pricing game below: -Refer to Scenario 13.16. If Gooi moves first, the payoff in equilibrium will be:

Scenario 13.7 Consider the game below about funding and construction of a dam to protect a 1,000-person town. Contributions to the Dam Fund, once made, cannot be recovered, and all citizens must contribute $1,000 to the dam in order for it to be built. The dam, if built, is worth $70,000 to each citizen. -Refer to the game in Scenario 13.7. If each player chose a maximin strategy, the outcome would be:

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