Game Theory and Business Strategy.
SELF-TEST
Finding Nash Equilibria
Finding Nash Equilibria
Question 1.
Player 2
X
Y
Player 1
A
10
,
10
15
,
5
B
5
,
15
12
,
12
What is the equilibrium of the above game?
A,X
B,X
A,Y
B,Y
Question 2.
Player 2
X
Y
Player 1
A
0
,
0
0
,
1
B
2
,
0
0
,
0
What is/are the equilibrium/equilibria of the above game?
B,X only
A,Y and B,X
A,Y; B,X; and B,Y
none
Question 3.
Player 2
X
Y
Z
Player 1
A
6
,
6
8
,
20
0
,
8
B
10
,
0
5
,
5
2
,
8
C
8
,
0
20
,
0
4
,
4
What is the unique equilibrium of the above game?
B,Y
C,Z
A,X
A,Y
Question 4.
Player 2
Rock
Paper
Scissors
Player 1
Rock
0
,
0
-1
,
1
1
,
-1
Paper
1
,
-1
0
,
0
-1
,
1
Scissors
-1
,
1
1
,
-1
0
,
0
How many equilibria (in pure strategies) does the above game have?
9
3
1
0
Question 5.
Two firms are involved in developing a new technology that will allow consumers to taste food over the Internet. This has potential, for example, in restaurant promotion. Given the risks and the relatively small expected size of this market, compatibility of the technologies is very important. Firm
DigiTaste
is far advanced in developing its
RemoteTaste
technology.
WebOdor
has been expanding into the Internet taste arena with its incompatible product,
BitterWeb.
The two companies agree that if they both adopt the same technology, they each may gross $200M from the developing industry. If they adopt different technologies, consumers will make fun of both companies, and purchase neither product, leading to a gross of $0. Retooling one's factory to make the competing (nonproprietary) technology would cost
WebOdor
$100M and
DigiTaste
$250M. By the wave of an economist's wand, their production decisions must be made simultaneously.
Set up the above scenario as a normal form (simultaneous) game.
What is the equilibrium outcome?
Both adopt
RemoteTaste
Both adopt
BitterWeb
DigiTaste
adopts
RemoteTaste
and
WebOdor
adopts
BitterWeb
WebOdor
adopts
RemoteTaste
and
DigiTaste
adopts
BitterWeb
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