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# Mike shor game theory business strategy 15 majority

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To whom do you tender your shares? Mike Shor Game Theory & Business Strategy 15 Majority of Others Macy’s Campeau You Macy’s \$70 \$60 Campeau \$74 \$67+

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How to Win a Bidding War Each player has a dominant strategy: Tender shares to Campeau Resulting Price: (½ x 74) + (½ x 60) = \$67 BUT: Macy’s offered \$70 ! Mike Shor Game Theory & Business Strategy 16
Dominant Strategies The biggest, looniest deal ever. Fortune Magazine, July 1988 on Campeau s acquisition of Federated Stores What if players do not have dominant strategies? Mike Shor Game Theory & Business Strategy 17

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Pricing without                          Dominant Strategies Two bars (bar 1, bar 2) compete Can charge price of \$2, \$4, or \$5 Customer base consists of tourists and natives 6,000 tourists pick a bar randomly 4,000 natives select the lowest price bar Marginal costs are close to zero Mike Shor Game Theory & Business Strategy 18
Tourists & Natives Example scenario: Bar 1 charges \$4, Bar 2 charges \$5 Bar 1 gets : 3,000 tourists + 4,000 natives = 7,000 customers x \$4 = \$28K Bar 2 gets : 3,000 tourists + 0 natives = 3,000 customers x \$5 = \$15K Mike Shor Game Theory & Business Strategy 19

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Tourists & Natives in thousands of dollars Mike Shor Game Theory & Business Strategy 20 \$2 \$4 \$5 Bar 1 \$2 10 , 10 14 , 12 14 , 15 \$4 12 , 14 20 , 20 28 , 15 \$5 15 , 14 15 , 28 25 , 25 Bar 2
Successive Elimination of Dominated  Strategies Does any player have a dominant strategy? Does any player have a dominated strategy? A strategy is dominated if there is some other strategy which always does better Eliminate the dominated strategies Reduce the size of the game Iterate the above procedure What is the equilibrium? Mike Shor Game Theory & Business Strategy 21

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Successive Elimination of Dominated  Strategies Mike Shor Game Theory & Business Strategy 22 \$2 \$4 \$5 Bar 1 \$2 10 , 10 14 , 12 14 , 15 \$4 12 , 14 20 , 20 28 , 15 \$5 15 , 14 15 , 28 25 , 25 Bar 2
Dominance Mike Shor Game Theory & Business Strategy 23 CAVEAT Expect your opponent to use her dominant  strategy if she has one. BUT Be sure you understand your             opponents’  true payoffs. (Do you know what                               really   motivates them?)

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No Dominated Strategies Often there are no dominated strategies Some games may have multiple equilibria
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• Spring '11
• Shor
• Game Theory, Mike Shor, Mike Shor Game, Shor Game Theory

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