ECP 5705 ECP5705 Week 4 Individual Work 1 (Everest University)
ECP 5705 Week 4 Individual Work 1 (Everest University)
Game theory defines strategic behavior as the interdependence of actions: what one person or entity does affects and is affected by what others do. In this assignment, you will show how we utilize game theory in various competitive situations.
For this assignment, refer to the concepts from Chapter 8 to respond to Exercises 7, 8, 11, and 12 starting on page 144.
7. Consider the following game between player 1, who chooses among strategies U, M, and D, and player 2, who chooses among strategies A, B, and C. Why is this normal form representation different from others in the chapter? The most reasonable prediction in this game is what?
8. Convert the following simultaneous-move game to a sequential-move game letting firm A go first. Demonstrate the value of a first mover. Demonstrate the value of a second mover.
11. Two firms are involved in developing a new technology that will allow consumers to provide the most incredibly clear picture yet devised on all video sources. Given the risks, compatibility of the technologies is very important. Firm Digi-View is far advanced in developing its RemoteHD technology. WebView has been expanding into the Internet arena with its incompatible product, WebHD. 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 purchase neither product, leading to a gross of $0. Retooling one’s factory to make the competing (nonproprietary) technology would cost WebView $100M and DigiView $250M. Their production decisions must be made simultaneously. Set up the above scenario as a normal form (simultaneous) game. What is the equilibrium outcome?
12. A firm is quite happy monopolizing its industry with profits of $10M. A potential competitor considers entering the industry. If the competitor elects not to enter, it earns profits of $0 and the monopolist maintains its profit of $10M. If the competitor enters, the monopolist must either accommodate the entry or fight. If the monopolist accommodates, both firms earn $5M. If the monopolist fights, both firms lose $5M. The game is represented by an extensive representation. What is the equilibrium?