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1、Chapter 1,Slide 1,Topics to be Discussed,Gaming and Strategic Decisions Dominant Strategies The Nash Equilibrium Repeated Games,Chapter 1,Slide 2,Topics to be Discussed,Sequential Games Threats, Commitments, and Credibility Entry Deterrence Bargaining Strategy Auctions,Chapter 1,Slide 3,Gaming and S
2、trategic Decisions,“If I believe that my competitors are rational and act to maximize their own profits, how should I take their behavior into account when making my own profit-maximizing decisions?”,Chapter 1,Slide 4,Gaming and Strategic Decisions,Noncooperative versus Cooperative Games Cooperative
3、 Game Players negotiate binding contracts that allow them to plan joint strategies Example: Buyer and seller negotiating the price of a good or service or a joint venture by two firms (i.e. Microsoft and Apple) Binding contracts are possible,Chapter 1,Slide 5,Gaming and Strategic Decisions,Noncooper
4、ative versus Cooperative Games Noncooperative Game Negotiation and enforcement of a binding contract are not possible Example: Two competing firms assuming the others behavior determine, independently, pricing and advertising strategy to gain market share Binding contracts are not possible,Chapter 1
5、,Slide 6,Gaming and Strategic Decisions,Noncooperative versus Cooperative Games “The strategy design is based on understanding your opponents point of view, and (assuming your opponent is rational) deducing how he or she is likely to respond to your actions”,Chapter 1,Slide 7,Gaming and Strategic De
6、cisions,An Example: How to buy a dollar bill 1)Auction a dollar bill 2)Highest bidder receives the dollar in return for the amount bid,Chapter 1,Slide 8,Gaming and Strategic Decisions,An Example 3)Second highest bidder must pay the amount he or she bid 4)How much would you bid for a dollar?,Chapter
7、1,Slide 9,Acquiring a Company,Scenario Company A: The Acquirer Company T: The Target A will offer cash for all of Ts shares What price to offer?,Chapter 1,Slide 10,Acquiring a Company,Scenario The value of T depends on the outcome of a current oil exploration project. Failure: Ts value = $0 Success:
8、 Ts value = $100/share All outcomes are equally likely,Chapter 1,Slide 11,Acquiring a Company,Scenario Ts value will be 50% greater with As management. A, must submit the proposal before the exploration outcome is known. T will not choose to accept or reject until after the outcome is known only to
9、T. How much should A offer?,Chapter 1,Slide 12,Key Ideas,Know your strategic situation, what is the game you are playing? Do not impose your own wishes and fancies on a game. that has been given to you . Your competitor is just as smart as you are! Has same information,rationality, and intelligence.
10、 you cannot “outguess” your opponent. Think about the response of others to your actions,Chapter 1,Slide 13,Game theory,Game theory is the study of strategic behavior in situation of conflict. In a oligopoly, a firms output choice depends on its prediction of its rivals output choices. These strateg
11、ic choices are complex because other firms are also choosing output based on their predictions of their rivals outputs. To choose its best output, a firm must determine what the best choices of other firms will be, assuming rational behavior by all other firms and then do the best it can.,Chapter 1,
12、Slide 14,Game Theory: Concept,A game is a general concept; it includes almost any situation in which each decision makers profits depends on actions of other decision makers. The decision makers are called the players. To describe a game, we need to know the rules of the game, the possible strategie
13、s of each player, and the payoffs from each possible combination of actions. Players are assumed to want to maximize their payoffs. The rules include the order of moves by the players and whether binding agreements about actions are possible. If no binding agreements are allowed, then the game is no
14、n-cooperative. The Cournot model is example of a non-cooperative game. Each firm independently makes its output choice with no possibility of entering into binding commitments with other firms. In fact, most games studied in economics are non-cooperative games. By contrast, in a cooperative game, fi
15、rms can make binding commitments that allow them to plan joint strategies. Contract negotiations are an important example of cooperative games.,Chapter 1,Slide 15,Three Factors,1. Players 2. Strategies 3. Payoffs,Chapter 1,Slide 16,Types of the game,With a duopoly example Cooperative Vs. Non-coopera
16、tive Simultaneous Vs. sequential choice One-time Vs. repeated games,Chapter 1,Slide 17,Prisoners Dilemma,Two prisoners have been accused of collaborating in a crime. They are in separate jail cells and cannot communicate with each other. Each has been asked to confess to the crime. If both prisoners confess, each will receive a prison term of five years. If neither confesses, the prosecutions case will be difficult to make, so the prisoners can expect to plea bargain and r
