Week 8- Strategic Games and Bargaining Flashcards
why may pricing aggressively (ie. low) not always be the best strategy?
Competitors may react similarly causing a price war which would negatively impact both businesses
what are the three elements of a game?
players, options (available to each player) and payoffs
what are the two types of game theory?
sequential and simultaneous
what is the main difference between a sequential move game and a simultaneous one?
in sequential games, players take turns to move and can see the what move the other player makes before deciding on what to do
what does the ‘tree form’ of a game in sequential games allow you to do?
look ahead and reason back
what does look ahead and reason back mean?
In sequential games, the players can anticipate the moves of the other player before making their move
what is ‘equilibrium’ in game theory?
when each player chooses the best available move, anticipating how the other will react
what are the two paths of action (options) available to the existing firm in an entrant sequential game?
accommodate or fight
how do you find the equilibrium in a sequential game?
Put two lines through the paths that resent sub-optimal choices
how can a firm deter entry from another firm into its market?
They can threaten to commit to fight the entrant and price low
What would alleviate a simultaneous move game problem?
if both players could collude
what is it called when two firms collude to both price high?
price fixing
in simultaneous games players always follow self-interest
They will always do what’s best for them
how firm a firm avoid being caught in a prisoners dilemma?
change the payoff structure of games so your profits are not dependant on the actions of others. Differentiate or become a cost leader
how many equilibria are there in simultaneous bargaining?
- This is because the two sides will change their move depending on what the other player does
