GameTheory_sol

GameTheory_sol - UBC Comm 295 Game Theory Solution to...

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UBC Comm 295 Game Theory Solution to Practice Questions Q 1. Two firms at the St. Louis airport have franchises to carry passengers to and from hotels in downtown St. Louis. These two firms, Metro Limo and Urban Limo, operate nine passenger vans. These duopolists cannot compete with price, but they can compete through advertising. Their payoff matrix is as shown below: United Limo Advertise Don’t Advertise Metro Limo Advertise 25, 15 30, 0 Don’t Advertise 15, 20 40, 5 (a) Does each firm have a dominant strategy? If so, explain and what that strategy is. (b) What is the Nash equilibrium of this game? Explain where the Nash equilibrium occurs in the payoff matrix. a. If United Limo advertises, then Metro does best by advertising; but if United does not advertise, then Metro should not advertise. That means Metro Limo has no dominant strategy. United has advertise as its dominant strategy because no matter what Metro chooses, United always chooses Advertise. b. Since United’s dominant strategy is to Advertise, it is the best for Metro to advertise too. Therefore NE = (Advertise, Advertise). Q.2 Two competing music retail stores, Sharp and Flat, offer adult piano lessons in a small city. Because of a strange city bylaw, both Sharp and Flat are required to charge a per-person fee of $20 over and above their cost of offering the lesson. Each store must choose whether or not to promote their piano lessons. Without any promotion, a total of 100 customers sign up for lessons, with 50 going to each store. If only one store promotes, then 120 customers sign up with 80 going to the promoting store and 40 going to the non-promoting store. If both stores promote, then 120 customers sign up with 60 going to each store. The cost of promotion for each store is $300. a)
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GameTheory_sol - UBC Comm 295 Game Theory Solution to...

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