Analyzing Simultaneous Move Games

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Analyzing Simultaneous Move Games When
Confrontations Takes Place Only Once
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Structure of Competition I
Your company is one of two in an industry which
generates 100m in total profits, divided up
equally between the two. Decision Do we
advertise or not? Cost is 30m. Advertising does
not expand market but does steal market
share. If you advertise and your competitor does
not, you capture 90 of sales and your competitor
gets the remainder (and you pay 30m). The
situation is similar for your competitor. Finally
, if you both advertise, you split the market at
50m each but must both pay advertising costs.
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Fill in payoff matrix and answer 1) If your
rival advertises, what do you want to do? 2) If
your rival does not advertise, what do you want
to do? 3) Figure out your rivals optimal
actions given what you do? 4) What do you
conclude the outcome will be? 5) Is there a more
profitable alternative that both players would
prefer?
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Structure of Competition II
Suppose your company is dominant in this 100m
industry, capturing 70 of profits. A small
growing rival is your competition. Advertising
which still costs 30m is much more effective
for your rival. If she advertises and you do
not, her revenues are 70m (you get the
residual). If you advertise and she does not,
your revenues are 80m (she gets the
residual). If you both advertise, your rivals
share of the gross profits increases to 45m
while your profits fall to 55m.
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Fill in payoff matrix and answer 1) If your
rival advertises, what do you want to do? 2) If
your rival does not advertise, what do you want
to do? 3) Suppose your rival knows 1) and 2).
What will she do? 4) Of what would you like to
convince your rival? If you could convince them
of this, how would the outcome change?
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Structure of Competition III
You need to decide whether you are going to use
ATP mens tennis tour or the US PGA golf tour as
your promotional vehicle. Both you and your
rival prefer tennis, since it has a larger
audience. However, both of you prefer not to go
head to head, since ATP tour would extract high
price if you both compete for it. Estimated
profits for all possible outcomes presented in
the table.
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1) Does either one of your strategies dominate
the other strategy? 2) Does either one of your
competitors strategies dominate the other? 3)
Are there any Nash equilibrium? 1) For each cell,
ask If one player is definitely going to do one
action, does the other player want to remain in
the same cell or switch? Any cell in which no
player wants to move given the other players
action is a Nash equilibrium. How many Nash
equilibrium are there in this game? What is your
prediction for the outcome?