Consider two competing firms in a declining industry that cannot support both firms profitably. Each firm...
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Consider two competing firms in a declining industry that cannot support both firms profitably. Each firm has three possible choices, as it must decide whether or not to exit the industry immediately, at the end of this quarter, or at the end of the next quarter. If a firm chooses to exit then its payoff is 0 from that point onward. Each quarter that both firms operate yields each a loss equal to -1, and each quarter that a firm operates alone yields it a payoff of 2. For example, if firm 1 plans to exit at the end of this quarter while firm 2 plans to exit at the end of next quarter then the payoffs are (-1,1) because both firms lose -1 in the first quarter and firm 2 gains 2 in the second. The payoff for each firm is the sum of its quarterly payoffs. 1. Write down this game in matrix form. 2. Are there any strictly dominated strategies? Are there any weakly dominated strate- gies? 3. Find the pure-strategy Nash Equilibria. 4. Find the unique mixed-strategy Nash equilibrium. (Hint: first perform iterative dele- tion of strictly dominated strategies, and then search for MSNE in the remaining game.) Consider two competing firms in a declining industry that cannot support both firms profitably. Each firm has three possible choices, as it must decide whether or not to exit the industry immediately, at the end of this quarter, or at the end of the next quarter. If a firm chooses to exit then its payoff is 0 from that point onward. Each quarter that both firms operate yields each a loss equal to -1, and each quarter that a firm operates alone yields it a payoff of 2. For example, if firm 1 plans to exit at the end of this quarter while firm 2 plans to exit at the end of next quarter then the payoffs are (-1,1) because both firms lose -1 in the first quarter and firm 2 gains 2 in the second. The payoff for each firm is the sum of its quarterly payoffs. 1. Write down this game in matrix form. 2. Are there any strictly dominated strategies? Are there any weakly dominated strate- gies? 3. Find the pure-strategy Nash Equilibria. 4. Find the unique mixed-strategy Nash equilibrium. (Hint: first perform iterative dele- tion of strictly dominated strategies, and then search for MSNE in the remaining game.)
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Related Book For
College Algebra
ISBN: 978-0134697024
12th edition
Authors: Margaret L. Lial, John Hornsby, David I. Schneider, Callie Daniels
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