Question 1

A moves first and can go L, M or R. B moves second and can go R, M or L. If both of them end up at L or at R, A gets $ 1 and B get $ 0. If one ends up at L and the other at R then B gets $ 1 and A gets $ 0. If B ends up in M while A does not, then A gets $ -1 while B gets $ 2. If both of them end up in M then both get $ 0. Show that A has no first mover advantage in this game.B. When it is B's turn to move, she will go M regardless of what A does. Since A knows this, the best she can do is to go M. Hence, A gets $ 0 in this game. There is really no advantage in going first.

Accepted Answer

Since B moves second, we start with B. When it is B's turn to move, she will go M regardless of what A does. Since A knows this, the best she can do is to go M. Hence, A gets $ 0 in this game. There is really no advantage in going first.

Question 2

Sealed bid construction contracts are examples of market games that are:

Accepted Answer

Sealed bid construction contracts are a one-time event where all bidders submit their bids simultaneously without knowledge of each other's bids. Therefore, it is a simultaneous and non-repeated market game.

Question 3

A and B are going to play a game twice. During both repetitions, if they both select a low price or a high price, their market share stays the same. But if one selects a low price while the other selects a high price, then the only with the low gets more money while the one with the high price loses some market share. Based on this information what is the most likely outcome in both periods.

Accepted Answer

Start with the second period. If you are A, you will select low price because that is the best you can do. Knowing this B will also select a low price. Now you know that B will select a low price in the second period and the game ends there. So in the first period you can do no better than select a low price. Knowing this, B will also select a low price. Hence in both periods both firms will select a low price.

Question 4

What impact does excess capacity play on determining the strategic focus of managers toward competitors?

Accepted Answer

The answer of What impact does excess capacity play on...

Question 5

Negotiations and binding contracts are not possible between rivals in:

Accepted Answer

Noncooperative games assume that each player works independently, maximizing their own payoff without considering the other players' interests. In such settings, players cannot make binding agreements or negotiate with their rivals. Examples of noncooperative games include the Prisoner's Dilemma and Cournot's Model. The other options, cooperative games, cartels, and single-firm monopolies, involve some level of cooperation or coordination between rivals and may involve binding agreements or contracts.

Question 6

If two firms exist in the market, it is often expected that the Cournot (Nash) equilibrium will occur. If the firms have significant excess capacity, then it is likely that corporate strategy will emphasize:

Accepted Answer

If the two firms have significant excess capacity, they would likely engage in a price competition to sell off their excess output. This would lead to a lower price equilibrium in the market. Therefore, the best choice is competition and low prices, which is Option B.

Question 7

As GMB and VolgaBus compete, GMB selects a new and superior brake technology. VolgaBus prefers a different brake technology, but feels trapped into selecting the same one used by GMB. This is called:

Accepted Answer

This is an example of first-mover advantage, where GMB gains an advantage by selecting a superior brake technology first, and VolgaBus feels compelled to choose the same technology in order to remain competitive.

Question 8

The process of looking at the final outcome and then reasoning back to initial decisions is called:

Accepted Answer

The process of reasoning backwards from the final outcome to the initial decisions is called backward induction. This is often used in game theory to determine the optimal strategy for each player based on their ability to reason backwards from the final outcome. Therefore, option D is the correct answer.

Question 9

As GMB moves to select a new passive restraint safety system for its buses, it finds that its competitor, VolgaBus, opposes the move with an alternative technology. GMB must now evaluate its strategy and determine whether:

Accepted Answer

GMB needs to assess whether VolgaBus's alternative technology is credible to make an informed decision about its own strategy.

Question 10

In a small numbers environment, _____________ is a useful managerial tool for considering rivals (competitors) responses to decision-making.

Accepted Answer

Game theory is a useful managerial tool for considering rivals' responses to decision-making in a small numbers environment. It involves analyzing the strategic interactions and decision-making of multiple individuals or entities in a competitive situation, such as businesses competing for customers in a marketplace. Using game theory, managers can anticipate the actions and reactions of their rivals and develop effective strategies to achieve their own objectives.

Question 11

Wal-Mart built the base of its retailing market power in small cities and towns. In most of those towns, the size of marketplace is so small that only one large retailer can successfully exist. This is known as:

Accepted Answer

Wal-Mart's success in small cities and towns can be attributed to the first-mover advantage. Being the first large retailer in the area, they were able to establish themselves as the dominant player and create barriers to entry for competitors.

Question 12

A dominant strategy is one where the one firm picks:

Accepted Answer

A dominant strategy is one where a firm chooses a strategy no matter what the rival firm does. Hence, the choice of the firm's strategy is not dependent on the rival's decision.

Question 13

What are the key managerial insights derived from game theory? Which one is most important?

Accepted Answer

The answer of What are the key managerial insights derived...

Question 14

Game theory between two firms with two outcomes tends to emphasize:

Accepted Answer

Game theory tends to emphasize noncooperative games when there are only two outcomes because each firm is focused on maximizing its own payoff, which can lead to a more competitive outcome. Cooperative games may be more relevant in situations with more than two outcomes or when firms have shared interests. Intra-firm decision making and purely competitive outcomes are not necessarily emphasized in game theory between two firms with two outcomes.

Question 15

Actions like entering a new market, pricing a new product or making a bid to buy another company are all useful Nash-like managerial decisions because they are:

Accepted Answer

These actions are typically strategic decisions that are not repeated often and require consideration of the simultaneous decisions of rivals, aligning with Nash equilibrium concepts.

Question 16

What is the difference between a repeated and a nonrepeated game and in which form is reputation an important consideration?

Accepted Answer

The answer of What is the difference between a repeated...

Question 17

Risk-averse managers often take the tack of selecting the secure strategy. That is the business decision that provides the:

Accepted Answer

Risk-averse managers prefer strategies that minimize potential losses, so they choose the option with the highest payoff among the worst payoffs to ensure security.

Question 18

The benefit of the mixed strategy is:

Accepted Answer

The benefit of the mixed strategy is the element of surprise that baffles the rivals. By using a mix of different strategies, a player can break the predictability of their moves and create confusion for their rival. This can increase the chances of success in the game. Therefore, option D is the best choice.

Question 19

When there are large network effects of adopting a new technology, firms often feel that government regulation or joint ventures can solve the:

Accepted Answer

Coordination problem refers to the difficulty of aligning the actions of different agents in a network. When there are large network effects, it becomes harder for firms to coordinate their efforts and adopt the new technology without the cooperation of others. In this context, government regulation or joint ventures can help to overcome the coordination problem and facilitate the adoption of the new technology by creating incentives for firms to cooperate and align their actions. The other options (A, C, and D) do not capture the core challenge that firms face in this context, which is the coordination problem.

Question 20

You toss two coins and if Heads or Tails shows up then I give $ 1. If only one Heads shows up then you give me $ 1. We play this many times. Who comes up ahead at the end of the day?

Accepted Answer

The answer of You toss two coins and if Heads...

Quiz 9: Economics of Strategy: Game Theory