Deck 4: Infinitely-Repeated, Static Games

Question 1

A trigger strategy is:

A) Used to obtain a higher payoff by committing to a strategy before a rival can commit to a strategy.
B) A strategy that selects the worst payoff from among the best payoffs.
C) A move made by a player in response to an unanticipated move by a rival.
D) A strategy that is neither strictly- nor weakly-dominant.
E) Both a and c are correct.

Answer 1

A move made by a player in response to an unanticipated move by a rival.

Question 2

It is easier to sustain a collusive agreement in an infinitely repeated game if:
I. The present value of the stream of payoffs from cooperating is lower.
II. The discount rate is lower.
III. The present value of violating the agreement is higher.
Which of the following is correct?

A) I only.
B) II only.
C) III only.
D) I and II only.
E) I and III only.

Answer 2

II only.

Question 3

It is easier to sustain a collusive agreement in an infinitely repeated game if:
I. The present value of the stream of payoffs from cooperating is higher.
II. The discount rate is higher.
III. The present value of violating the agreement is lower.
Which of the following is correct?

A) I only.
B) II only.
C) III only.
D) I and II only.
E) I and III only.

Answer 3

I and III only.

Question 4

It is harder to sustain a collusive agreement in an infinitely repeated game if:
I. The present value of the stream of payoffs from cooperating is higher.
II. The discount rate is lower.
III. The present value of violating the agreement is higher.
Which of the following is correct?

A) I only.
B) II only.
C) III only.
D) I and II only.
E) II and III only.

Question 5

It is harder to sustain a collusive agreement in an infinitely repeated game if:
I. The present value of the stream of payoffs from cooperating is lower.
II. The discount rate is higher.
III. The present value of violating the agreement is lower.
Which of the following is correct?

A) I only.
B) II only.
C) III only.
D) I and II only.
E) II and III only.

Question 6

-Consider the pricing game depicted in Figure 4.1 in which the payoffs are in millions of dollars. If this game is played just once, the Nash equilibrium strategy profile is:

A) {Low price, Low price}.
B) {Low price, High price}.
C) {High price, Low price}.
D) {High price, High price}.

Question 7

-Consider the pricing game depicted in Figure 4.1 in which the payoffs are in millions of dollars. If the discount rate is 20 percent and this game is infinitely repeated, what is the present value of the stream of payoffs from a no collusion strategy?

A) $4 million.
B) $10 million.
C) $24 million.
D) $36 million.
E) None of the above.

Question 8

-Consider the pricing game depicted in Figure 4.1 in which the payoffs are in millions of dollars. If the discount rate is 20 percent and this game is infinitely repeated, what is the present value of the stream of payoffs by cooperating?

A) $24 million.
B) $34 million.
C) $52 million.
D) $60 million.
E) None of the above.

Question 9

-Consider the pricing game depicted in Figure 4.1 in which the payoffs are in millions of dollars. If the discount rate is 20 percent and this game is infinitely repeated, what is the present value of the stream of payoffs from defection?

A) $68 million.
B) $92 million.
C) $120 million.
D) $132 million.
E) None of the above.

Question 10

-Consider the pricing game depicted in Figure 4.1 in which the payoffs are in millions of dollars. If this game is infinitely repeated, below what discount rate will cooperation become unstable?

A) 3.33 percent.
B) 5 percent.
C) 6.67 percent.
D) 7.25 percent.
E) 12.5 percent.

Question 11

-Consider the oil-drilling game depicted in Figure 4.2 in which the payoffs are in millions of dollars. If this game is played just once, the Nash equilibrium strategy profile is:

A) {Narrow, Narrow}.
B) {Narrow, Wide}.
C) {Wide, Narrow}.
D) {Wide, Wide}.
E) Both a and d are correct.

Question 12

-Consider the oil-drilling game depicted in Figure 4.2 in which the payoffs are in millions of dollars. Suppose that the discount rate is 40 percent and this game is infinitely repeated. What is the present value of the stream of payoffs from a no collusion strategy?

A) $84 million.
B) $140 million.
C) $168 million.
D) $182 million.
E) None of the above.

Question 13

-Consider the oil-drilling game depicted in Figure 4.2 in which the payoffs are in millionsof dollars. Suppose that the discount rate is 40 percent and this game is infinitely repeated. What is the present value of the stream of payoffs by cooperating?

A) $84 million.
B) $140 million.
C) $168 million.
D) $182 million.
E) None of the above.

Question 14

-Consider the oil-drilling game depicted in Figure 4.2 in which the payoffs are in millionsof dollars. Suppose that the discount rate is 40 percent and this game is infinitely repeated. What is the present value of the stream of payoffs from defection?

A) $84 million.
B) $140 million.
C) $168 million.
D) $182 million.
E) None of the above.

Question 15

-Consider the oil-drilling game depicted in Figure 4.2 in which the payoffs are in millions of dollars. Below what discount rate will cooperation become unstable?

A) 6.67 percent.
B) 15 percent.
C) 25 percent.
D) 33.33 percent.
E) 50 percent.

Question 16

60

-Consider the expansion game depicted in Figure 4.3. If this game is played just once, the Nash equilibrium strategy profile is:

A) {Do not expand, Do not expand}.
B) {Do not expand, Expand}.
C) {Expand, Do not expand}.
D) {Expand, Expand}.

Question 17

60

-Consider the infinitely-repeated expansion game depicted in Figure 4.3. Suppose that the discount rate is 75 percent. What is the present value of the stream of payoffs from a no collusion strategy?

A) $22.22 million.
B) $42 million.
C) $51.33 million.
D) $76 million.
E) None of the above.

Question 18

60

-Consider the infinitely-repeated expansion game depicted in Figure 4.3. Suppose that the discount rate is 75 percent. What is the present value of the stream of payoffs from cooperation?

A) $22.22 million.
B) $42 million.
C) $51.33 million.
D) $76 million.
E) None of the above.

Question 19

60

-Consider the infinitely-repeated expansion game depicted in Figure 4.3. Suppose that thediscount rate is 75 percent. What is the present value of the stream of payoffs from defection?

A) $22.22 million.
B) $42 million.
C) $51.33 million.
D) $76 million.
E) None of the above.

Question 20

60

-Consider the infinitely-repeated expansion game depicted in Figure 4.3. At what discount rate is a firm indifferent between cooperating and defecting?

A) Around 13 percent.
B) Around 24 percent.
C) Around 27 percent.
D) Around 33 percent.
E) None of the above.

Question 21

A trigger strategy that involves the most punitive response when a rival defects from a collusive agreement is called a:

A) Savage strategy.
B) Minimax regret strategy.
C) Maximin strategy.
D) Grim strategy.
E) Retaliation strategy.

Question 22

-Consider the pricing game depicted in Figure 4.4. If this game is played just once, the focal-point strategy profile is most likely:

A) {Low, Low}.
B) {High, High}.
C) {Moderate, Moderate}.
D) {Low, High}.
E) {High, Moderate}

Question 23

-Consider the infinitely-repeated pricing game depicted in Figure 4.4. If the players agree to cooperate, the most likely strategy profile is:

A) {Low, Low}.
B) {High, High}.
C) {Moderate, Moderate}.
D) {Low, High}.
E) {High, Moderate}

Question 24

-Consider the infinitely-repeated pricing game depicted in Figure 4.4 in which the players agree to cooperate. If one of the players violates the agreement, a rival's most likely trigger strategy is:

A) Low.
B) High.
C) Moderate.
D) Answers a and b are equally likely.
E) Answers a and c are equally likely.

Question 25

-Consider the infinitely-repeated pricing game depicted in Figure 4.4. What is the presentvalue of the stream of payoffs from a no collusion strategy if the discount rate is 10 percent?

A) $270.
B) $330.
C) $370.
D) $500.
E) $550.

Question 26

-Consider the infinitely-repeated pricing game depicted in Figure 4.4. What is the present value of the stream of payoffs from collusion if the discount rate is 10 percent?

A) $270
B) $330.
C) $370.
D) $500.
E) $550.

Question 27

-Consider the infinitely-repeated pricing game depicted in Figure 4.4. What is the present value of the stream of payoffs from defection if the discount rate is 10 percent and the rival adopts his or her most likely trigger strategy?

A) $270
B) $330.
C) $370.
D) $500.
E) $550.

Question 28

-Consider the infinitely-repeated pricing game depicted in Figure 4.4. Below what discount rate will cooperation become unstable?

A) 25 percent.
B) 50 percent.
C) 75 percent.
D) 100 percent.
E) None of the above.

Question 29

What is the present value of the stream of payoffs from defection if the discount rate is 10 percent and the rival adopts his or her grim strategy?

A) $270
B) $330.
C) $350.
D) $500.
E) $550.

Question 30

Loss of reputation and the use of contracts make threats, promises or commitments credible by:

A) Altering payoffs.
B) Making retreat difficult.
C) Modifying strategies.
D) Including more players.
E) Changing the rules of the game.

Question 31

Closing doors, burning bridges, brinksmanship, baby steps, teamwork, and the use of agents make threats, promises or commitments credible by:

A) Altering payoffs.
B) Making retreat difficult.
C) Modifying strategies.
D) Including more players.
E) Changing the rules of the game.

Question 32

Which of the following can be used to make threats credible by altering payoffs?

A) Contracts and teamwork.
B) Contracts and loss of reputation.
C) Loss of reputation and burning bridges.
D) Burning bridges and brinksmanship.
E) Brinksmanship and burning bridges.

Question 33

_____ can make threats credible by making retreat difficult.
I. Burning bridges.
II. Brinksmanship.
III. Contracts.
IV. Reputation.
Which of the following is correct?

A) I only.
B) II only.
C) III only.
D) IV only.
E) I and II only.

Question 34

If a finitely-repeated games has a certain end:

A) Each period effectively becomes the final period.
B) The game reduces to a series of noncooperative, one-time games.
C) There is an end-of-game problem.
D) All of the above.
E) None of the above.

Question 35

Which of the following affects the ability of firms to form collusive agreements in an infinitely-repeated price-setting game?

A) Number of firms with similar interests.
B) Firm size relative to the industry.
C) Visibility of the collusion.
D) All of the above.
E) None of the above.

Question 36

In the text application "The Hunt for Red October,"Captain Marco Ramius was criticized by his co-conspirators for his decision to inform Admiral Yuri Padorin of his intention to defect. This strategic move by Ramius is an example of:

A) Burning bridges.
B) Brinksmanship.
C) Closing doors.
D) Bluffing.
E) Scorched earth.

Question 37

In the text application "Fail-Safe," the strategic policy of mutually assured destruction is an example of:

A) Burning bridges.
B) Brinksmanship.
C) Closing doors.
D) Bluffing.
E) Scorched earth.