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Unformatted text preview: 1 Chapter 11 Strategic Choice in Oligopoly, Monopolistic Competition, and Everyday Life Q. 2, 4, 6, 8, 10 2 Chapter 11, Problem 2 2) Consider the following “dating game”, which has two players, A and B, and two strategies, to buy a movie ticket or a baseball ticket. The payoffs, given in points, are as shown in the matrix below. Note that the highest payoffs occur when both A and B attend the same event. 3 2 for A 3 for B 0 for A 0 for B 1 for A 1 for B 3 for A 2 for B B A Buy movie ticket Buy movie ticket Buy baseball ticket Buy baseball ticket Assume that players A and B buy their tickets separately and simultaneously. Each must decide what to do knowing the available choices and payoffs but not what the other has actually chosen. Each player believes the other to be rational and selfinterested. 4 a) Does either player have a dominant strategy? Timing is not matter in this case. Assumption: If A assumes B buys movie ticket , A will buy movie ticket . If A assumes B buys baseball ticket , A will buy baseball ticket . If B assumes A buys movie ticket , B will buy movie ticket . If B assumes A buys baseball ticket , B will buy baseball ticket . Therefore, there is no dominant strategy. Each player buys the ticket according to other player’s choice. 5 a) How many potential equilibria are there? (Hint: To see whether a given combination of strategies is an equilibrium, ask whether either player could get a higher payoff by changing his or her strategy.) There are 2 potential equilibria, the upperleft cell and the lower right cell. According to the assumption, in each cell, neither player has any incentive to change strategies. 6 a) Is this game a prisoner’s dilemma? Explain. Prisoner’s dilemma: a game in which each player has a dominant strategy . For each player, given any strategy played by the other players, this “dominant” strategy results in a higher payoff than all other available strategies. Therefore, this game is not a prisoner’s dilemma because neither player has a dominant strategy. 7 a) Suppose player A gets to buy his or her ticket first. Player B does not observe A’s choice, but knows that A chose first. Player A knows that player B knows he or she chose first. What is the equilibrium outcome? Each player believes the other to be rational and selfinterested and each knowing the payoffs. If A chooses first and buys a movie ticket, given A’s choice, B will also buy movie ticket. A will get a payoff of 2....
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 Fall '08
 DR.DEMURGER
 Management, Remote Office, Jack Jill, Sally Harry, baseball ticket

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