Exam 10: Game Theory: Inside Oligopoly

If you advertise and your rival advertises,you each will earn $3 million in profits.If neither of you advertises,you will each earn $7 million in profits.However,if one of you advertises and the other does not,the firm that advertises will earn $10 million and the non-advertising firm will earn $1 million.If you and your rival plan to be in business for only one year,the Nash equilibrium is for your firm:

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?

In the game shown below,firms 1 and 2 must independently decide whether to charge high or low prices. Firm Two Firm One High Price Low Price High Price (10,10) (5,-5) Low Price (5,-5) (0,0) Which of the following are Nash equilibrium payoffs in the one-shot game?

When analyzing the behavior of oligopolists,which of the following is crucial for the success of game theoretic analysis?

Refer to the normal-form game of bargaining shown below. Management Union \ 0 \ 250 \ 500 \ 0 (\ 0,\ 0) (\ 0,\ 250) (\ 0,\ 500) \ 250 (\ 250,\ 0) (\ 250,\ 250) (-\ 10,-\ 10) \ 500 (\ 500,\ 0) (-\ 10,-\ 10) (-\ 10,-\ 10) 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 Figure 10-16.The number of inefficient outcomes resulting from the bargaining game is:

Management and a labor union are bargaining over how much of a $100 surplus to give to the union.The $100 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 $100.Which of the following is NOT a Nash equilibrium?

Refer to the following game. Firm B Firm A Low Price High Price Low Price (10,9) (15,8) High Price (-10,7) (11,11) If this one-shot game is repeated three times,the Nash equilibrium payoffs for firms A and B will be ______ each period.

Which of the following is true?

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

A secure strategy is a strategy that:

Based on your knowledge of one-shot and repeated games,would you expect tipping behavior to differ depending on whether a person is eating in a hometown diner or in a restaurant located in Timbuktu?

Consider the following information for a simultaneous move game: If you advertise and your rival advertises,you each will earn $5 million in profits.If neither of you advertises,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.If you and your rival plan to be in business for 10 years,then the Nash equilibrium is:

Which of the following is true for a Nash equilibrium of a two-player game?

Firms will try to signal superior quality of their goods by:

Refer to the game. Player 2 Player 1 1 2 3 1 10,0 5,1 4,-200 2 10,100 5,0 0,-100 Which of the following pairs of strategies constitute a Nash equilibrium of the game?

Two executives were arrested by authorities for embezzling money from their firm.Short of a confession,the prosecutor only had enough evidence to put them away for 10 years.Given a confession,however,she was certain to put them behind bars for life without parole,since they killed a law enforcement officer who was investigating the case.The prosecutor put the two prisoners in separate rooms and told them the following: "If you confess and your partner does not,I'll give you a year's probated sentence but put your partner in the slammer for life without parole.Of course,if your partner confesses and you don't,you'll get the life sentence without parole and he'll get one year's probation.I must warn you,however,that if you both confess I'll have enough evidence to put you both away for life without parole." a.Do you think the prosecutor's bargain will induce the two executives to confess? b.Would your answer change if the life sentence carried the possibility of parole?

Refer to the normal-form game of price competition shown below. Firm B is the incumbent facing potential entry from its rival,firm A. Firm A's strategies consist of {entry, stay out}. Firm B's strategies are then {hard if entry; hard if stay out; soft if entry; soft if stay out}. Find the non-subgame Nash equilibrium to this game, if one exists.

You are the manager of XYZ Inc.and must decide how much output to produce to maximize your firm's profit.XYZ and its rival,ABC Corp.,produce a good that consumers view as essentially identical.These two firms make up the entire industry,so the market price for the good depends on the total amount produced by the two firms.A survey reveals that the market price of the product depends on total market output as follows: Cormbined Output of XYZ and ABC Product Price 200 units \ 6 300 units \ 5 400 urits \ 4 XYZ and ABC each use labor,materials,and machines to produce output.XYZ purchases labor and materials on an as-needed basis; their machines were purchased three years ago and are being depreciated according to the straight-line method.XYZ's accounting department has provided the following data about its unit production costs: XYZ's Unit Cost for ary Output of: Itern 100 units units Direct labor Direct materials Depreciation charge Reports from industry experts suggest that ABC's cost structure is similar to XYZ's cost structure and that technological constraints require each firm to produce either 100 units or 200 units of output. a.Briefly explain which costs are relevant for your decision,and why. b.Write this game in normal form. c.How many units should XYZ produce: 100 units or 200 units?

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

Refer to the following game. Firm B Firm A Low Price High Price Low Price (9,10) (8,15) High Price (7,-10) (11,11) Which of the following is true?