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committment_Presentation

committment_Presentation - Dominant/Fringe Firm Standard...

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1 Commitment Cornell University Commitment example Firm 2 18, 6 15, 6.5 Passive 16.5, 5 12.5, 4.5 Aggressive Passive Aggressive Firm 1 Cornell University Chucky Willy Willy Enter Stay out Accommodate Fight (0,10) (-1,5) (-5,-2) (0,5) A F (Chucky’s payout, Willy’s payout) The Entry Decision: Should Chucky Enter or Not? (Case 1) Cornell University Chucky Willy Willy Enter Stay out Accommodate Fight (0,10) (1,5) (-5,-2) The Entry Decision: Should Chucky Enter or Not? (Case 2)
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2 Cornell University Chucky Willy Willy Enter Stay out Accommodate Fight (0,10) (3,3) (-1,4) The Entry Decision: Should Chucky Enter or Not? (Case 3) Cornell University Chucky Willy Willy Enter Stay out Accommodate Fight (0,10) (3,-3) (4,-2) The Entry Decision: Should Chucky Enter or Not? (Case 4) Cornell University We won’t be undersold! Standard Bertrand game Homogenous goods Single-shot, simultaneous game P=100-Q, MC 1 =MC 2 =10 Each firm’s strategy is: Set a price Match rival’s price if it’s lower Cornell University
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Unformatted text preview: Dominant/Fringe Firm Standard Bertrand game Homogenous goods Single-shot, simultaneous game P=100-Q, MC 1 =MC 2 =10 Capacity 1 =1000, Capacity 2 =5 Is there a Nash Equilibrium? 3 Cornel University Prisoner’s Dilemma in Pricing: Pepsi vs. Coke Coke makes very high profit; Pepsi makes very low profit Both receive low profit Pepsi makes very high profit; Coke makes very low profit Both receive high profit Coke’s Actions Pepsi’s Actions Price High Price Low Price Low Price High Cornel University Prisoner’s Dilemma in Advertising: Phillip Morris vs. RJR RJR makes very high profit; P-M makes very low profit Both receive low profit P-M makes very high profits; RJR makes very low profit Both receive high profit RJR’s Actions Phillip Morris’ Actions Advertise Lightly Advertise Heavily Advertise Lightly Advertise Heavily...
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