Exam 10: Game Theory: Inside Oligopoly

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. Which of the following is true?

There are two existing firms in the market for computer chips. Firm A knows how to reduce the production costs for the chip and is considering whether to adopt the innovation or not. Innovation incurs a fixed setup cost of C, while increasing the revenue. However, once the new technology is adopted, another firm, B, can adopt it with a smaller setup cost of C/2. If A innovates and B does not, A earns $20 in revenue while B earns $0. If A innovates and B does likewise, both firms earn $15 in revenue. If neither firm innovates, both earn $5. Under what condition will firm A innovate?

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 your 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?

Suppose that you are a manager. You are considering whether or not to monitor employees with the payoffs in the normal-form game shown below. 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 true?

You are the manager of the ABC novelty store, and your only competitor is the XYZ novelty store. You are both trying to decide on which magic tricks and party favors to carry in stock. The product mixes available to both of you are low, medium, and high in variety. Your expected earnings in this market are shown in the following table: a. Find the Nash equilibrium (or equilibria) for a simultaneous-move, one-shot play of this game. b. What outcome would you expect in this one-shot game? Why?

Refer to the following game. Which of the following is true?

If you advertise and your rival advertises, you each will earn $4 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 $1 million and the non-advertising firm will earn $5 million. Which of the following is true?

A Nash equilibrium with a noncredible threat as a component is:

Which of the following is true?

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.

Which of the following is NOT true?

Game theory is best applied to the analysis of:

The NCAA prohibits schools that are caught paying athletes from participating in bowl games, and sometimes the punishment is even more severe. Explain why schools don't break away from the NCAA and form a league in which athletes can legitimately be paid. (Hint: Use hypothetical payoffs to construct an illustrative normal-form game in which the strategies are "pay players" and "don't pay players." Then analyze the game in one-shot and infinitely repeated contexts.)

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

Suppose that you are a manager. You are considering whether or not to monitor employees with the payoffs in the normal-form game shown below. 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 NOT a Nash equilibrium?

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:

Refer to the normal-form game of price competition shown below. Which of the following represents firm A's full strategy space?

Which of the following is true?

A mixed 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? Explain.