Problem #1

Two grocery stores are competing for the market in the El Tesoro neighborhood.
Divine Providence determined that if it increases its prices and if La Baratera also
increases its prices, it will lose 1% if it decreases them. If La Divina Providencia
maintains its prices, it gains 4% of customers, if La Baratera increases its prices: it
loses. 5% if it reduces them. Finally, La Divina Providencia is sure to gain 9% of
customers by reducing its prices and if La Baratera increases its prices, it gains 3%
if it maintains them, but loses 1% if La Baratera in turn decreases them. . Using
game theory, determine what is most convenient.

Divine Providence
Strategy Price Maintain Reduce Minimum
Increases Price Price values of
each row
Price 1 -4 -9 -9
increases
Maintain 3 0 -3 -3
La Baratera

Price
Reduce 11 5 1 1
Price
Maximum
values of 11 5 1 1
each column

Answer The most convenient thing is that both companies choose to reduce prices,
however, the game favors La Baratera since the result is positive, with a profit of 1

Problem #2
Consider 2 opponents A and B who have the following payoff matrix.

Player B
Strategy B1 B2 Min. Value
Player A

A1 10 6 6

A2 8 2 2

Max. Value 10 6 6

Answer:
A) The strategy that player A would use would be A1
B) The strategy that player B would use would be B2.
C) The value of the game is 6, and it favors player A, because it is a positive
result
Problem #3
Consider 2 opponents A and B who have the following payoff matrix.

Player B
Strategy B1 B2 Min. Value

A1 10 6 6
Player A

A2 8 12 8

Max. Value 10 12

Subsection a: Player A

[p, (1-p)] * |10 6 |

|8 12|

10p + 8 (1-p) = 6p + 12 (1-p)

10p + 8 – 8p = 6p + 12 – 12p
10p – 8p – 6p + 12p = 12 -8
8p = 4
P= 4/8
P= 0.5

R// The probability of using strategy A1 is P=0.5

(1-p) = (1-0.5) ---> 0.5

R// The probability of using strategy A2 is P=0.5

 Which strategy is A most likely to follow?

Player A will choose to use both strategies A1 and A2 because they have
the same percentage value.

 What value does this probability have?

The value is P=0.50

Subsection b: Player B
[q, (1-q)] * |10 8 |
|6 12|

10q + 6(1-q) = 8q + 12(1-q)

10p + 6 – 6p = 8p + 12 – 12p
10p – 6p – 8p + 12p = 12 -6
8p = 6
P= 6/8
P= 0.75

R// The probability of using strategy B1 is P=0.75

(1-q) = (1-0.75) ---> 0.25

R// The probability of using strategy B2 is P=0.25

 Which strategy is B most likely to follow?

The strategy that best suits you is B1 since it has the highest percentage

 What value does this probability have?

The value is P=0.75

Subsection c

0.75 0.25
B1 B2
0.5 A1 10 6
0.5 A2 8 12

(10*0.5*0.75)+(6*0.5*0.25)+(8*0.5*0.75)+(12*0.5*0.25) = 9

 What is the value of the game if both follow mixed strategies?

The value of the game is 9 and favors player A

Subsection d

 If A stays in strategy A1 all the time, how much profit would he obtain?
If A stays in Strategy A1 all the time, the profit he would obtain would be 10
Problem #4

Companies I and II compete for business. What I gains is what II loses. The
following table shows the profits of company I for different market shares.
 Company II
Strategy No Media Massive Minimum
advertising Advertising Advertising values of
each row
Without 60 50 40 40
Advertising
Company I Media 70 70 50 50
Advertising
Massive 80 60 75 60
Advertising
Maximum
values of 80 70 75
each column

Company II
Strategy No advertising Media Massive
Advertising Advertising
Company I No advertising 60 50 40
Media Advertising 70 70 50
Massive Advertising 80 60 75

Company II
Strategy Medium Extensive Min. Value
advertising advertising
Media Advertising 70 50 50
Company I Massive Advertising 60 75 60
Max. Value 70 75

Company I
[p, (1-p)] * |70 50|
|60 75|

70p + 60 (1-p) = 50p + 75 (1-p)

70p + 60 – 60p = 50p + 75 – 75p
70p – 60p – 50p + 75p = 75 - 60
35p = 15
P= 15/35
P= 0.428571
R// The probability of Company 1 using Medium Advertising is P= 0.43

(1-p) = (1 - 0.428571 ) ---> 0.571429

R// The probability of Company 1 using Large Advertising is P= 0.57

Company II
[p, (1-p)] * |70 60|
|50 75|

70p + 50 (1-p) = 60p + 75 (1-p)

70p + 50 – 50p = 60p + 75 – 75p
70p – 50p – 60p + 75p = 75 - 50
P35 = 25
P= 25/35
P= 0.714285
R// The probability of Company 2 using Medium Advertising is P= 0.71

(1-p) = (1 - 0.714285 ) ---> 0.285715

R// The probability of Company 2 using Heavy Advertising is P= 0.29

0.71 0.29
Media Massive
Advertisin Advertisin
g g
0.43 Media 70 50
Advertisin
g
0.57 Extensive 60 75
advertisin
g

(70*0.43*0.71)+(50*0.43*0.29)+(60*0.71*0.57)+(75*0.29*0.57) = 64.3

 Is there a balance solution?

There is no equilibrium solution because obviously the result favors
company 1

 What is the value of the game?

The value of the game is 64.3 and favors Company 1 because it is positive.