Exam 10: Game Theory: Inside Oligopoly

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. Which of the following is true?

A mixed strategy is a strategy

If you advertise and your rival advertises, you each will earn $5 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 $15 million and the non advertising firm will earn $1 million.Which of the following is true?

You are the manager of Copies Are Us.The only other copy store in town, the Carbon Copy, recently got bids on adding a color copier.You must decide whether to obtain a color copier, but you can base decision on what your rival does.If your rival adds a color copier and you don't, you expect your profits to fall by $1,000 per week and its profits to rise by $1,500 per week.Conversely, if you add the color copier and your rival does not, your profits will increase by $1,500 per week and your rival's profits will fall by $1,000 per week.However, if you both do the same thing (add color copies or not), you each expect profits to stay at their current level.Show the extensive form of this game, and find the Nash equilibrium (or equilibria).Is there a subgame perfect equilibrium?

Which of the following is the major means to signal good quality of goods by firms?

You are the owner-operator of the Better Gas Station in a small southeastern town.Over the past 20 years, you and your rival have successfully kept prices at a very high level.You recently learned that your competitor is retiring and closing his station in two weeks.What should you do today? Why?

What are secure strategies for firm A and firm B respectively?

Suppose that Firm A deviates from a trigger strategy to support a high price.What is the present value of A's payoff from cheating?

Firms will try to signal superior quality of their goods by

Consider the above advertising game.Firms A and B know the game will be played for exactly 5 periods.What is the Nash equilibrium to this game?

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

Use the following information to answer question: Suppose that you are a manager.You are considering whether or not to monitor employees with the payoffs in the following normal form game. -Management and a labor union are bargaining over how much of a $50 surplus to give to the union.The $50 is divisible up to one cent.The players have one-shot to reach an agreement.Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer.Both players get zero if the total amounts asked for exceed $50.Which of the following is a perfect equilibrium?

A coordination problem usually occurs in situations where there is

What are secure strategies for firm A and firm B respectively?

Which of the following is not an important determinant of collusion in pricing games?

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.If you and your rival plan to be in business for only one year, the Nash equilibrium is

Game theory is best applied to analysis of

What is the maximum interest rate that can sustain collusion?

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 inefficient outcomes resulting from the bargaining game is

Suppose there is a 50 percent chance that the advertising game depicted in the above payoff matrix will end next period.The collusive agreement {(Not Advertise, Not Advertise)} is