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Froeb15 - 1 Froeb Chapter 15 Froeb Chapter 15 Strategic...

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Unformatted text preview: 1 Froeb Chapter 15 Froeb Chapter 15 Strategic Games Summary of main points A Nash equilibrium is a pair of strategies, one for each player, in which each strategy is a best response against the other. When players act rationally, optimally, and in their own self- interest, its possible to compute the likely outcomes (equilibria) of games. By studying games, we learn not only where our strategies are likely to take us, but also how to modify the rules of the game to our own advantage. Equilibria of sequential games, where players take turns moving, are influenced by who moves first (a potential first- mover advantage, or disadvantage), and who can commit to a future course of action. Credible commitments are difficult to make because they require that players threaten to act in an unprintable wayagainst their self-interest. In simultaneous-move games, players move at the same time. 2 Summary of main points In the prisoners dilemma, convict and cooperation are in tensionself-interest leads to outcomes that reduce both players payoffs. Cooperation can improve both players payoffs. In a repeated prisoners dilemma, it is easier for players to learn to cooperate. Here are some general rules of thumb: Be nice : No rest strikes. Be easily provoked : Respond immediately to rivals. Be forgiving : Dont try to punish competitors too much. Dont be envious : Focus on your own slice of the port pie, not on your competitors on your competitor s. Be clear : Make sure your competitors can easily interpret your actions. Introductory anecdote: Blu-ray In February 2002, nine electronics companies, led by Sony, announced plans for the next big video recording format: Blu-Ray By August of that same year, Toshiba and NEC announced plans for a rival technology: HD-DVD A common standard among all competitors (rather than two rival technologies) would have best benefited consumers. With a common standard, demand for the new technology would have grown more rapidly and all producers would have benefitted. But some producers would benefitted more than others: Sony would have profited from the choice of Blu-ray while Toshiba would have preferred HD-DVD. Both sides waged a standards war, recruiting big name entertainment groups (such as Disney, Paramount Pictures, HBO, etc.) to take sides. In the end, Blu-Ray won after Walmart announced it would sell only Blu-Ray disc players. 3 In a standards war, the profit of one firm depends on the actions of other firms, rivals, consumers, and suppliers. This type of interdependence is characteristic of games, and we analyze it using game theory ....
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This note was uploaded on 06/20/2011 for the course MGMT 524 taught by Professor Andrews,r during the Spring '08 term at VCU.

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Froeb15 - 1 Froeb Chapter 15 Froeb Chapter 15 Strategic...

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