Exam 11: Game Theory and Strategic Behavior

If a firm has a reputation for engaging in destructive price wars, then its rivals will be less likely to engage in price competition. The firm's reputation represents a

A Nash equilibrium is always a dominant strategy equilibrium.

If a two-player game has a Nash equilibrium, then

Shortage of capacity is an example of a credible threat that can act as a deterrent to entry by rivals.

Dominant strategy refers to the behavior of the price leader in an industry with a dominant firm.

Two donut shops compete against each other in a town. Both are considering an increase in increasing the quality of the flour and other baking goods. Their interdependent alternatives are described by the payoff matrix. What is each firm's optimal strategy and anticipated payoff?

Which one of the following is not a part of every game theory model?

Game theory is primarily concerned with the study of games like roulette and dice.

Consider the following game: player II A B player I A (100,100) (100,200) B (200,100) (0,0) Does player I have a dominant strategy and if yes, what is it?

Consider the following simultaneous move game: Player II Player I (400,300) (200,200) B (100,150) (300,100) In the matrix above the first number represents the payoff to Player I and the second number to Player II. For example, if both players choose action A, then Player I gains 400 and Player II gains 300. What is the best response of Player I if Player II chooses A?

A market for airplanes has only two players: Boeing and Airbus. They are both trying to decide on a pricing strategy of a new large jet capable of carrying 400 passengers. If both firms charge a high price for their planes, then each firm will experience a 10 percent decrease in profits. If both firms charge a low price, then each firm will experience a 15 percent decrease in profits. If Being charges a high price and Airbus charges a low price, then Being will experience a 18 percent decrease in profits and Airbus will experience a 10 percent increase in profits. If Airbus charges a high price and Boeing charges a low price, then Airbus will experience a 17 percent decrease in profits and Boeing will experience a 10 percent increase in profits. (i) Construct a payoff matrix for this game. (ii) Determine whether each firm has a dominant strategy and, if it does, identify the strategy. (iii) Determine the optimal strategy for each firm.

A pair of duopolists, Firm A and Firm B, manufacture seasonal toys. Both are planning their pricing strategies for the coming holiday season. The firms will choose between a low price (Low) and a high price (High). Firm A has a more flexible production and distribution system than Firm B and is therefore able to begin the season with one pricing strategy and then adopt a different strategy in midseason. While Firm B is unable to change its strategy in midseason, it can delay making a choice until after Firm A has announced its prices for the first part of the season. The firms' alternatives and payoffs are displayed in the decision tree diagram. Use this information to determine each firm's optimal strategy and anticipated payoff.

Two grocery stores compete against each other in a community. Both are considering an increase in advertising expenditures. Their interdependent alternatives are described by the payoff matrix. Firm 2 Advertise Don't Advertise Firm 1 Advertise (6,4) (9,5) Don'tAdvertise (3,7) (8,6) (i) Determine whether each firm has a dominant strategy and, if it does, identify the strategy. (ii) Determine the optimal strategy for each firm. (iii) Determine the Nash equilibrium. (iv) Is this a prisoners' dilemma? How do you know?

One of the postulates of game theory is that a firm will always have a single dominant strategy.

A plan of action that considers the reactions of rivals is an example of

A firm may decide to increase its scale so that it has excess production capacity because, by doing so, it is able to

Consider the following game: The matrix above represents the decisions and payoffs to Firm A and Firm B. What is the solution to this game or what is the most likely outcome of this game?

Firm A and Firm B operate retail malls. Both are trying to determine whether to increase advertising budgets during the holiday season or to keep them constant. Because of contract cycles, Firm A will have to make a commitment regarding an advertising budget before Firm B. Their alternatives and payoffs are displayed in the decision tree diagram. Use this information to determine each firm's optimal strategy and anticipated payoff.

Which of the following legal restrictions, if enforced effectively, would be likely to solve a prisoners' dilemma type of problem for the firms involved?

In game theory, a situation in which one firm can gain only what another firm loses is called a