Professional Documents
Culture Documents
Chapter 10
Chapter 10
Chapter 10
Chapter 10
slide 1
10.2
10.3
ZERO-SUM GAMES
Market-Share Example
C1
C2
C3
R1 -2 , 2
-1 , 1
4 , -4
R2 3 , -3
2 , -2
-2
5 , -5
R3 7 , 7
-3 , 3
-5 , 5
Equilibrium: R2 versus C2
(where circle and square coincide).
Resulting Value is (2, -2).
10.4
10.5
NON-ZERO-SUM GAMES
A Price War
AC=$4
High P=$8
Low P=$6
High P=$8
Low P=$6
High P=$8
Low P=$6
10, 10
10
10
5,
88, 12
8
AC=$4
10, 10
(2.5, 2.5)
5, 12
12
High P=$8
(2.5, 2.5)
12,
12 5
77, 77
(6, 1.25)
(3.5, 3.5)
Low P=$6
12,
8, 85
7, 7
(4, 2)
(3.5, 3.5)
10.6
General
2, 2
8, 1
55, 55
Cooperate
Defect
Cooperate
R, R
S, T
T
Defect
T
T, S
P P
P, P
10.7
QUANTITY COMPETITION
Each Firm's MC is $6.
72, 72
Q2 = 8
60, 80 81 48, 80
64
80, 60
64, 64
64
81
80, 48 49 60, 48
My Best Response to
Competitor's Output?
Q2 = 10
49
48, 60
40, 40
According to table,
Equilibrium is:
Q1 = Q 2 = 8
MARKET ENTRY
10.8
Stay Out
Enter
Stay Out
0, 0
00, 4
Enter
44, 00
-4, -4
10.9
THINKING AHEAD
Fashioning Strategies using Interactive Decision Trees
Example: Deterring Market Entry
E
Keep Price
Enter
5, 10
M
Cut Price
Keep Price
Stay Out
-5, 5
0, 20
Keep
Enter
Not
Cut
5, 10 -5,-5
0,20
0,15
E enters in equilibrium.
M
Cut Price
0, 15
10.10
5, 10
E
Stay Out
Enter
Cut Price
Enter
0, 20
-5, 5
E
Stay Out
Keep
0, 15
Not
Cut
5, 10 -5,-5
0,20
0,15
10.11