Week 8

Question 1

Sequential move games — representation

Answer 1

Trees

• Similar to decision trees, with different decision makers (or players) at different decion nodes
• Actions available to players are represented as branches

Question 2

Sequential move games — solution

Answer 2

• “backward induction”
• Start at the end of the game, and mark actions optimal for players deciding at end nodes — eliminate other actions
• Continue process, working your way backward to the beginning of the game.

Question 3

Barriers to entry:

Answer 3

• Structural barriers - exogenously driven by technology or regulation (fixed costs/size of market, cost advantage, patents)
• Strategic barriers - result from aggresive behaviour by incumbent (eg. excess capacity, predatory pricing)

Question 4

Strategic commitmnets strategies

Answer 4

• Invest in R&D to develop efficient technology
• Load up on debt that can be serviced only if the firm maintains market share.
• Commit to irrevocable agreements to purchase expensive material.

Cortes example - Upon arrving in Cempoalla he gave orders to burn down all ships. Strategic commitment.