Lecture 20: Game Theory (I)
Suggested questions and exercises (Pindyck and Rubinfeld, Ch.13).
Exercises: 4, 5, 6, 7
EXERCISES
4.
Two firms are in the chocolate market.
Each can choose to go for the high end of
the market (high quality) or the low end (low quality).
Resulting profits are given
by the following payoff matrix:
Firm 2
Low
High
Low
20, 30
900, 600
Firm 1
High
100, 800
50, 50
a.
What outcomes, if any, are Nash equilibria?
b.
What is the cooperative outcome?
c.
Which firm benefits most from the cooperative outcome?
How much would
that firm need to offer the other to persuade it to collude?
5.
Two major networks are competing for viewer ratings in the 8:009:00 P.M. and
9:0010:00 P.M. slots on a given weeknight.
Each has two shows to fill this time
period and is juggling its lineup.
Each can choose to put its “bigger”
show first or to
place it second in the 9:0010:00 P.M. slot.
The combination of decisions leads to the
following “ratings points” results:
Network 2
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 Fall '10
 Tontz
 Microeconomics, Game Theory, Nash equilibria, payoff matrix

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