Exam 10: Game Theory: Inside Oligopoly

A finitely repeated game differs from an infinitely repeated game in that:

Would collusion be more likely in the shoe industry or in the airline industry? Why?

A secure strategy is a strategy that

If this one-shot game is repeated three times, the Nash equilibrium payoffs for Firm A and B will be ______ each period.

What are the Nash equilibrium strategies for firm A and B respectively?

It is easier to sustain tacit collusion in an infinitely repeated game if:

Suppose the market for computer chips is dominated by two firms: Intel and AMD.Intel has discovered how to make superior chips and is considering whether or not to adopt the new technology.Adoption would entail a fixed setup cost of C but would increase revenues.However, if Intel adopts the new technology, AMD can easily copy it at a lower setup cost of C/2.If Intel adopts and AMD does not, Intel would earn $20 in revenues while AMD would earn $0.If Intel adopts and AMD does likewise, each firm will earn $15 in revenues.If Intel does not adopt the new technology, it will earn $5 and AMD will earn $2. a.Write this game in extensive form. b.Under what conditions (i.e., for what values of C) does AMD have an incentive to adopt the new technology if Intel introduces it? c.If C = 12, should Intel adopt the new technology? Explain.

Economists use game theory to predict the behavior of oligopolists.Which of the following is crucial for the success of the analysis?

Under what condition will Firm A innovate?

Firms A must decide whether or not to introduce a new product.If Firm A introduces a new product, Firm B must decide whether or not to clone the product.The payoff structure of the game is depicted in the above tree diagram.The sub-game perfect Nash equilibrium to this game is

Suppose that management and the union are bargaining over how much of a $500 surplus to give to the union.It is assumed that the surplus can only be split into $250 increments.Furthermore, negotiations are set up such that management and the union must simultaneously and independently write down the amount of surplus to allocate to the union.The payoff structure to this one-shot bargaining game is listed in the above payoff matrix.The number of efficient outcomes resulting from the bargaining game is

If you advertise and your rival advertises, you each will earn $4 million in profits.If neither of you advertise, you will each earn $10 million in profits.However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non advertising firm will earn $5 million.Suppose this game is repeated for a finite number of times, but the players do not know the exact date at which the game will end.The players can earn profits of $10 each period as a Nash equilibrium to a repeated play of the game if the probability the game terminates at the end of any period is

A dominant strategy is a strategy that

Suppose the game is infinitely repeated, and the interest rate is 5%.Both firms agree to charge a high price, provided no player has charged in low price in the past.If both firms stick to this agreement, then the present value of Firm B's payoffs are:

For what values of x is strategy (B, D) the only Nash equilibrium of the game?

According to a spokesperson for cereal maker Kellogg, ".... for the past several years, our individual company growth has come out of the other fellow's hide." HYPERLINK "#_ftn1"" _ftn1" a.What implications does this statement have for the level of advertising in the cereal industry? b.Using the following hypothetical payoff matrix, explain how trigger strategies can be used to support the collusive level of advertising in an infinitely repeated game.For what values of the interest can collusion be sustained?

What are the Nash equilibrium strategies for this game?

You are considering entering a market serviced by a monopolist.You currently earn $0 economic profits, while the monopolist earns $5.If you enter the market and the monopolist engages in a price war, you will lose $5 and the monopolist will earn $1.If the monopolist doesn't engage in a price war, you will each earn profits of $2. a.Write out the extensive form of the above game. b.There are two Nash equilibria for the game.What are they? c.Is there a subgame perfect equilibrium? Explain. d.If you were the potential entrant, would you enter? Explain why or why not.

Suppose there is a 20 percent chance that the advertising game depicted in the above payoff matrix will end next period.The collusive agreement {(Not Advertise, Not Advertise)} is

If player one charges a High Price when player two charges a Low Price, then player two earns: