Deck 13: Best-Practice Tactics: Game Theory

Question 1

Credibility in threats and commitments in sequential games is based on

A) randomizing one's actions so they are unpredictable
B) explicit communications with competitors
C) effective scenario planning
D) analyzing best reply responses
E) none of the above

Answer 1

D

Question 2

A dominant strategy differs from a Nash equilibrium strategy in that

A) Nash equilibrium strategy does not assume best reply responses
B) dominant strategy assumes best reply responses
C) only Nash strategy applies to simultaneous games
D) one dominant strategy is sufficient to predict behavior in a multi-person game
E) Nash strategy is often unique

Answer 2

D

Question 3

The starting point of many methods for predicting equilibrium strategy in sequential games is

A) designing proactive reactions to rival actions
B) information sets
C) uncertain outcomes
D) backwards induction based on an explicit order of play
E) endgame analysis

Answer 3

E

Question 4

In adopting mixed Nash equilibrium strategy,a player is attempting to

A) randomize his or her own behavior
B) make the opponent favor a course of action preferred by the first player
C) randomize the outcome of actions
D) make the opponent indifferent between one action and another
E) none of the above

Question 5

To trust a potential cooperator until the first defection and then never cooperate thereafter is

A) a dominant strategy
B) an irrational strategy
C) a grim trigger strategy
D) a non-cooperative finite game strategy
E) a subgame imperfect strategy

Question 6

Non-cooperative sequential games can incorporate all the following features except

A) a single decision-maker in the endgame
B) no communication
C) finite or infinite time periods
D) third-party enforceable agreements
E) an explicit order of play

Question 7

An illustration of a non-credible commitment is the promise

A) to not increase capacity in a declining industry
B) to match a new entrant's discount price
C) to enter a profitable industry
D) to restrain output to the quota assigned by a cartel
E) to exit in the face of projected losses.

Question 8

When there is no Equilibrium (or no Nash Equilibrium),we expect that:

A) the firms end up in the cooperative strategy.
B) a firm will follow a randomized strategy.
C) a firm will not care what it does.
D) a firm will very likely have a dominant strategy.

Question 9

The Prisoner's Dilemma involves two spies who are held in separate soundproof rooms.But even if the two spies could communicate,what makes it difficult for them to achieve the cooperative solution (both not confessing)?

A) The problem is their lack of information.
B) The problem is that it is a nonzero sum game.
C) The problem is that both spies have incentives to double cross each other.
D) The problem is that all the outcomes are not particularly good for either player.

Question 10

A strategy game is

A) any pricing competition among firms
B) a situation arising from independent decision making among economic participants
C) interpendent choice behavior by individuals or groups who share a common goal
D) none of the above

Question 11

A key to analyzing subgame perfect equilibrium strategy in sequential games is

A) predictable behavior
B) an explicit order of play for at least some participants
C) information sets that are known with certainty
D) credible threats clearly communicated
E) randomness

Question 12

When there is an Equilibrium (or a Nash Equilibrium),we expect that:

A) once the firms get there,no one will change their strategy.
B) firms will tend to select a randomized strategy.
C) neither firm will care what it does.
D) this is always a dominated strategy.

Question 13

Essential components of a game include all of the following except:

A) players
B) payoffs
C) actions
D) an information set
E) cooperation

Question 14

The difference between cooperative and non-cooperative games is

A) cooperative games allow side payments to support collusion
B) non-cooperative games encourage communication of sensitive information between arms-length competitors
C) cooperative games involve randomized behavior
D) cooperative games necessitate an explicit order of play
E) inconsequential except when players have contractual relationships

Question 15

In a zero-sum game

A) all players receive a $0 payoff
B) all players can simultaneously win
C) the gains to the winners equal the losses of the losers
D) none of the above

Question 16

If two firms operate in a market that is characterized as being a Prisoner's Dilemma,and the two strategies given them are to restrict output or expand output,which of the following strategy pairs would represent the cooperative solution in a duopoly for firm 1 and firm 2,and firm 1 given first in each pair?

A) {expand output,restrict output}
B) {restrict output,expand output}
C) {restrict output,restrict output}
D) {expand output,expand output}

Question 17

Consider the game known as the Prisoner's Dilemma.What's the dilemma?

A) By both not confessing,both get to the cooperative solution and minimize time in prison.
B) By both confessing,both get to the noncooperative solution and both serve significant time in prison.
C) As a group,they are better off cooperating by not confessing,but each player has an incentive to be first to confess in a double cross.
D) The problem is that the spies should never have been caught; they should move to Rio.

Question 18

In a game,a dominated strategy is one where:

A) It is always the best strategy
B) It is always the worst strategy
C) It is the strategy that is the best among the group of worst possible strategies.
D) Is sometimes the best and sometimes the worst strategy

Question 19

In making promises that are not guaranteed by third parties and in imposing penalties that are not enforced by third parties,all of the following are credibility-enhancing mechanisms except

A) establishing a bond forfeited by violating the commitment
B) investing in a non-redeployable reputational asset tied to the promise or threat
C) interrupting the communication of negotiated compromises
D) offering a warranty
E) delivering a hostage (e.g.,a patent license triggered by violating the promise)

Question 20

In ____ 2-person,nonzero-sum games there is no communication between the participants and no way to enforce agreements.

A) noncooperative
B) cooperative
C) a and b
D) none of the above

Question 21

In choosing whether to deliver to six or seven neighborhoods,Harry's Pizzeria has to take into account not only its own costs but the delivery area response of its competitor Pizza Spinners.If the payoffs per week from delivering in six and seven neighborhoods are as displayed in Exhibit 13-1,what will Harry's Pizzeria choose and why?

Question 22

If one-time gains from defection are always less than the discounted present value of an infinite time stream of cooperative payoffs at some given discount rate,the decision-makers have escaped

A) the Folk Theorem
B) the law of large numbers
C) the Prisoner's dilemma
D) the paradox of large numbers
E) the strategy of recusal

Question 23

The conditions that will always identify a Nash equilibrium include: ​

A) ​subjectively getting into the mind of one's opponent
B) a reflexive assessment of the best reply responses
C) ​a prospective condition of improvement
D) a through c
E) ​b and c only

Question 24

All of the following are sunk cost investments that precommit an incumbent to aggressively defend market share and the cash flow prior to threatened entry except

A) reputational investments in company logos (e.g.,Beatrice)
B) automobile showrooms
C) retail displays which hold only L'eggs egg-shaped hosiery packages
D) neon signage for an independently owned Krispy Kreme store
E) excess capacity in a declining industry

Question 25

Suppose a new low cost discount firm must decide in advance between introducing LARGE or SMALL capacity in a licensed cable TV market where the incumbent then will decide on a HIGH or MATCHING pricing response.If the following table describes the payoffs from various combinations of these strategies,what capacity will the new entrant choose and why?

Question 26

In choosing whether to deliver to six or seven neighborhoods,Pizza Spinners has to take into account not only its own costs,but also the delivery area response of its competitor Harry's Pizzeria.If the payoffs per week from delivering in six and seven neighborhoods are as displayed in the exhibit above,what will Pizza Spinner's choose and why?

Question 27

Cooperation in repeated prisoner's dilemma situations seems to be enhanced by all of the following except

A) limited punishment schemes
B) clarity of conditional rewards
C) grim trigger strategy
D) provocability--i.e.,credible threats of punishment
E) tit for tat strategy

Question 28

Retailers A and B anticipate many repetitions of the following pricing game in which they must choose between discounting or maintaining higher prices.Under what circumstances will store A resist discounting and choose MAINTAIN?

Question 29

An efficient customer sorting rule is one in which

A) customers with high willingness to pay secure the discounted goods
B) customers are rationed randomly between the discounted and full price goods
C) no customer purchase below her willingness to pay
D) customers with the lowest willingness to pay secure the discount goods
E) brand loyalty allows the incumbent to retain its regular customers

Question 30

​Any dominant equilibrium implies:

A) ​a sequential game
B) ​instability
C) ​a price-taking equilibrium
D) ​a Nash equilibrium

Question 31

Credible promises and hostage mechanisms can support a continuous stream of cooperative exchanges except when

A) the promisor is better off fulfilling than ignoring his promise
B) neither party has a prior dominant strategy
C) the hostage can be revoked for just causes
D) the hostage is more valuable than any given exchange
E) the hostage is difficult to replace

Question 32

In deciding whether to invest in excess capacity in order to deter entry,incumbents should consider all of the following except

A) the order of play in pricing and capacity choice decisions
B) the customer sorting pattern
C) the sunk cost required to achieve excess capacity
D) the joint-profit-maximizing cartel output
E) the potential entrant's projected profitability

Question 33

An inverse intensity customer sorting rule is one in which

A) customers with high willingness to pay secure the discounted goods
B) customers are rationed randomly between the discounted and full price goods
C) no customers purchase below their willingness to pay
D) customers with the lowest willingness to pay secure the discounted goods
E) brand loyalty allows the incumbent to retain its regular customers

Question 34

If the city-pair route from Orlando to New Orleans is served by only two air carriers,Northwest and Delta,and if the payoffs from discounting or maintaining high prices are as below,what behavior would you predict for Delta in a one-play game and why?

Question 35

The chain store paradox of an incumbent who accommodates a finite stream of potential entrants threatening to enter sequentially numerous markets illustrates

A) backwards induction
B) the unraveling problem
C) subgame perfect equilibrium
D) best reply responses
E) all of the above