QUESTION 4 One classic application of the game theory is the prisoner's dilemma game. Prisoner's dilemma...

 

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QUESTION 4 One classic application of the game theory is the prisoner's dilemma game. Prisoner's dilemma games are games in which each player has a dominant strategy; and when both players play the dominant strategy, the payoffs are similar than if each player played the dominated strategy. The dilemma is how to avoid this bad outcome. The basics of the prisoner's dilemma game are as follows: Suppose two local suppliers are seeking to win the right to upgrade the communications capability of the internal Aintranet that link a number of customers with their suppliers. The system quality decision facing each competitor and potential profit payoffs varies. The players in the relevant product markets are Smart Equipment Supply and Business Systems, Inc. If both competitors, Smart Equipment Supply and Business Systems, Inc., pursue a high-quality strategy, Smart Equipment Supply will earn $25,000 and Business Systems, Inc., will earn $50,000. If Smart Equipment Supply pursues a high-quality strategy while Business Systems, Inc., offers low-quality goods and services, Smart Equipment Supply will earn $40,000; Business Systems, Inc., will earn $22,000. If Smart Equipment Supply offers low-quality goods while Business Systems, Inc., offers high-quality goods, Smart Equipment Supply will suffer a net loss of $25,000, and Business Systems, Inc., will earn $20,000. Finally, if Smart. Equipment Supply offers low-quality goods while Business Systems, Inc. offers low-quality goods, both Smart Equipment Supply and Business Systems, Inc., will earn $25,000. Use the above information and answer the following questions. a) Explain the three basic elements of the game. b) Create a payoff matrix for the prisoner's dilemma game. c) Are there any dominant strategies? Explain d) Identify any dominated strategies. Explain e) Is there a Nash Equilibrium? Explain. (1 Mark) (2 Marks) (2 Marks) (1 Mark) QUESTION 4 One classic application of the game theory is the prisoner's dilemma game. Prisoner's dilemma games are games in which each player has a dominant strategy; and when both players play the dominant strategy, the payoffs are similar than if each player played the dominated strategy. The dilemma is how to avoid this bad outcome. The basics of the prisoner's dilemma game are as follows: Suppose two local suppliers are seeking to win the right to upgrade the communications capability of the internal Aintranet that link a number of customers with their suppliers. The system quality decision facing each competitor and potential profit payoffs varies. The players in the relevant product markets are Smart Equipment Supply and Business Systems, Inc. If both competitors, Smart Equipment Supply and Business Systems, Inc., pursue a high-quality strategy, Smart Equipment Supply will earn $25,000 and Business Systems, Inc., will earn $50,000. If Smart Equipment Supply pursues a high-quality strategy while Business Systems, Inc., offers low-quality goods and services, Smart Equipment Supply will earn $40,000; Business Systems, Inc., will earn $22,000. If Smart Equipment Supply offers low-quality goods while Business Systems, Inc., offers high-quality goods, Smart Equipment Supply will suffer a net loss of $25,000, and Business Systems, Inc., will earn $20,000. Finally, if Smart. Equipment Supply offers low-quality goods while Business Systems, Inc. offers low-quality goods, both Smart Equipment Supply and Business Systems, Inc., will earn $25,000. Use the above information and answer the following questions. a) Explain the three basic elements of the game. b) Create a payoff matrix for the prisoner's dilemma game. c) Are there any dominant strategies? Explain d) Identify any dominated strategies. Explain e) Is there a Nash Equilibrium? Explain. (1 Mark) (2 Marks) (2 Marks) (1 Mark)

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C so dominant strategy exists only for P1 which is set high Qua... View the full answer