微觀經(jīng)濟(jì)學(xué)英文課件：chapter-13 Game Theory and Competitive Strategy

1、Chapter 13Game Theory and Competitive Strategy1Chapter 1Topics to be DiscussedGaming and Strategic DecisionsDominant StrategiesThe Nash Equilibrium RevisitedRepeated Games2Chapter 1Topics to be DiscussedSequential GamesThreats, Commitments, and CredibilityEntry DeterrenceBargaining StrategyAuctions3

2、Chapter 1Gaming and Strategic 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?”4Chapter 1Gaming and Strategic DecisionsNoncooperative versus Cooperative GamesCo

3、operative GamePlayers negotiate binding contracts that allow them to plan joint strategiesExample: 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 possible5Chapter 1Gaming and Strategic DecisionsNoncooperati

4、ve versus Cooperative GamesNoncooperative GameNegotiation and enforcement of a binding contract are not possibleExample: Two competing firms assuming the others behavior determine, independently, pricing and advertising strategy to gain market shareBinding contracts are not possible6Chapter 1Gaming

5、and Strategic DecisionsNoncooperative versus Cooperative Games“The strategy design is based on understanding your opponents point of view, and (assuming you opponent is rational) deducing how he or she is likely to respond to your actions”7Chapter 1Gaming and Strategic DecisionsAn Example: How to bu

6、y a dollar bill1)Auction a dollar bill2)Highest bidder receives the dollar in return for the amount bid8Chapter 1Gaming and Strategic DecisionsAn Example3)Second highest bidder must pay the amount he or she bid4)How much would you bid for a dollar?9Chapter 1Acquiring a CompanyScenarioCompany A: The

7、AcquirerCompany T: The TargetA will offer cash for all of Ts sharesWhat price to offer?10Chapter 1Acquiring a CompanyScenarioThe value of T depends on the outcome of a current oil exploration project.Failure: Ts value = $0Success: Ts value = $100/shareAll outcomes are equally likely11Chapter 1Acquir

8、ing a CompanyScenarioTs 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 T.How much should A offer?12Chapter 1Dominant StrategiesDominant StrategyOne that is

9、 optimal no matter what an opponent does.An ExampleA & B sell competing productsThey are deciding whether to undertake advertising campaigns13Chapter 1Payoff Matrix for Advertising GameFirm AAdvertiseDontAdvertiseAdvertiseDontAdvertiseFirm B10, 515, 010, 26, 814Chapter 1Payoff Matrix for Advertising

10、 GameFirm AAdvertiseDontAdvertiseAdvertiseDontAdvertiseFirm B10, 515, 010, 26, 8ObservationsA: regardless of B, advertising is the bestB: regardless of A, advertising is best15Chapter 1Payoff Matrix for Advertising GameFirm AAdvertiseDontAdvertiseAdvertiseDontAdvertiseFirm B10, 515, 010, 26, 8Observ

11、ationsDominant strategy for A & B is to advertiseDo not worry about the other playerEquilibrium in dominant strategy16Chapter 1Dominant StrategiesGame Without Dominant StrategyThe optimal decision of a player without a dominant strategy will depend on what the other player does.17Chapter 110, 515, 0

12、20, 26, 8Firm AAdvertiseDontAdvertiseAdvertiseDontAdvertiseFirm BModified Advertising Game18Chapter 110, 515, 020, 26, 8Firm AAdvertiseDontAdvertiseAdvertiseDontAdvertiseFirm BModified Advertising GameObservationsA: No dominant strategy; depends on Bs actionsB: AdvertiseQuestionWhat should A do? (Hi

13、nt: consider Bs decision19Chapter 1The Nash Equilibrium RevisitedDominant Strategies“Im doing the best I can no matter what you do.”“Youre doing the best you can no matter what I do.”20Chapter 1The Nash Equilibrium RevisitedNash Equilibrium“Im doing the best I can given what you are doing”“Youre doi

14、ng the best you can given what I am doing.”21Chapter 1Examples With A Nash EquilibriumTwo cereal companiesMarket for one producer of crispy cerealMarket for one producer of sweet cerealEach firm only has the resources to introduce one cerealNoncooperativeThe Nash Equilibrium RevisitedProduct Choice

15、Problem22Chapter 1Product Choice ProblemFirm 1CrispySweetCrispySweetFirm 2-5, -510, 10-5, -510, 1023Chapter 1Product Choice ProblemFirm 1CrispySweetCrispySweetFirm 2-5, -510, 10-5, -510, 10QuestionIs there a Nash equilibrium?If not, why?If so, how can it be reached24Chapter 1Beach Location GameScena

16、rioTwo competitors, Y and C, selling soft drinksBeach 200 yards longSunbathers are spread evenly along the beachPrice Y = Price CCustomer will buy from the closest vendor25Chapter 1Beach Location GameWhere will the competitors locate (i.e. where is the Nash equilibrium)?Ocean0BBeachA200 yardsC26Chap

17、ter 1Beach Location Game2)Examples of this decision problem include:Locating a gas stationPresidential electionsOcean0BBeachA200 yardsC27Chapter 1The Nash Equilibrium RevisitedMaximin StrategiesScenarioTwo firms compete selling file-encryption softwareThey both use the same encryption standard (file

18、s encrypted by one software can be read by the other - advantage to consumers)28Chapter 1The Nash Equilibrium RevisitedMaximin StrategiesScenarioFirm 1 has a much larger market share than Firm 2Both are considering investing in a new encryption standard29Chapter 1Maximin StrategyFirm 1Dont investInv

19、estFirm 20, 0-10, 1020, 10-100, 0Dont investInvest30Chapter 1Maximin StrategyFirm 1Dont investInvestFirm 20, 0-10, 1020, 10-100, 0Dont investInvestObservationsDominant strategy Firm 2: InvestNash equilibriumFirm 1: investFirm 2: Invest31Chapter 1Maximin StrategyFirm 1Dont investInvestFirm 20, 0-10,

20、1020, 10-100, 0Dont investInvestObservationsIf Firm 2 does not invest, Firm 1 incurs significant lossesFirm 1 might play dont investMinimize losses to 10 -maximin strategy32Chapter 1If both are rational and informedBoth firms investNash equilibriumThe Nash Equilibrium RevisitedMaximin Strategy33Chap

21、ter 1ConsiderIf Player 2 is not rational or completely informedFirm 1s maximin strategy is to not investFirm 2s maximin strategy is to invest.If 1 knows 2 is using a maximin strategy, 1 would investThe Nash Equilibrium RevisitedMaximin Strategy34Chapter 1Prisoners DilemmaPrisoner AConfessDont Confes

22、sConfessDontConfessPrisoner B-5, -5-1, -10-2, -2-10, -135Chapter 1Prisoners DilemmaPrisoner AConfessDont ConfessConfessDontConfessPrisoner B-5, -5-1, -10-2, -2-10, -1What is the:Dominant strategyNash equilibriumMaximin solution36Chapter 1Pure StrategyPlayer makes a specific choiceMixed StrategyPlaye

23、r makes a random choice among two or more possible actions based on a set of chosen probabilitiesThe Nash Equilibrium RevisitedMixed Strategy37Chapter 1Matching PenniesPlayer AHeadsTailsHeadsTailsPlayer B1, -1-1, 11, -1-1, 138Chapter 1Matching PenniesPlayer AHeadsTailsHeadsTailsPlayer B1, -1-1, 11,

24、-1-1, 1ObservationsPure strategy: No Nash equilibriumMixed strategy: Random choice is a Nash equilibriumWould a firm set price based on random choice assumption?39Chapter 1The Battle of the SexesJimWrestlingOperaWrestlingOperaJoan2,10,01,20,040Chapter 1The Battle of the SexesJim WrestlingOperaWrestl

25、ingOperaJoan2,10,01,20,0Pure StrategyBoth watch wrestlingBoth watch operaMixed StrategyJim chooses wrestlingJoan chooses wrestling41Chapter 1Repeated GamesOligopolistic firms play a repeated game.With each repetition of the Prisoners Dilemma, firms can develop reputations about their behavior and st

26、udy the behavior of their competitors.42Chapter 1Pricing ProblemFirm 1Low PriceHigh PriceLow PriceHigh PriceFirm 210, 10100, -5050, 50-50, 10043Chapter 1Pricing ProblemFirm 1Low PriceHigh PriceLow PriceHigh PriceFirm 210, 10100, -5050, 50-50, 100Non-repeated gameStrategy is Low1, Low2Repeated gameTi

27、t-for-tat strategy is the most profitable44Chapter 1Repeated GamesConclusion:With repeated game The Prisoners Dilemma can have a cooperative outcome with tit-for-tat strategy45Chapter 1Repeated GamesConclusion:This is most likely to occur in a market with:Few firmsStable demandStable cost46Chapter 1

28、Repeated GamesConclusionCooperation is difficult at best since these factors may change in the long-run.47Chapter 1Oligopolistic Cooperationin the Water Meter IndustryCharacteristics of the MarketFour ProducersRockwell International (35%), Badger Meter, Neptune Water Meter Company, and Hersey Produc

29、ts (Badger, Neptune, and Hersey combined have about a 50 to 55% share)48Chapter 1Oligopolistic Cooperationin the Water Meter IndustryCharacteristics of the MarketVery inelastic demandNot a significant part of the budget49Chapter 1Characteristics of the MarketStable demandLong standing relationship b

30、etween consumer and producer BarrierEconomies of scaleBarrierOligopolistic Cooperationin the Water Meter Industry50Chapter 1Characteristics of the MarketThis is a Prisoners DilemmaLower price to a competitive levelCooperateRepeated GameQuestionWhy has cooperation prevailed?Oligopolistic Cooperationi

31、n the Water Meter Industry51Chapter 1What Do You Think?Is there cooperation & collusion in the airline industry?Competition and Collusionin the Airline Industry52Chapter 1Sequential GamesPlayers move in turnPlayers must think through the possible actions and rational reactions of each player53Chapte

32、r 1Sequential GamesExamplesResponding to a competitors ad campaignEntry decisionsResponding to regulatory policy54Chapter 1ScenarioTwo new (sweet, crispy) cerealsSuccessful only if each firm produces one cerealSweet will sell betterBoth still profitable with only one producerSequential GamesThe Exte

33、nsive Form of a Game55Chapter 1Modified Product Choice ProblemFirm 1CrispySweetCrispySweetFirm 2-5, -510, 20-5, -520, 1056Chapter 1Modified Product Choice ProblemFirm 1CrispySweetCrispySweetFirm 2-5, -510, 20-5, -520, 10QuestionWhat is the likely outcome if both make their decisions independently, s

34、imultaneously, and without knowledge of the others intentions?57Chapter 1Assume that Firm 1 will introduce its new cereal first (a sequential game).QuestionWhat will be the outcome of this game?Modified Product Choice ProblemThe Extensive Form of a Game58Chapter 1Sequential GamesThe Extensive Form o

35、f a GameUsing a decision treeWork backward from the best outcome for Firm 1The Extensive Form of a Game59Chapter 1Product Choice Game in Extensive FormCrispySweetCrispySweet-5, -510, 2020, 10-5, -5Firm 1CrispySweetFirm 2Firm 260Chapter 1Sequential GamesThe Advantage of Moving FirstIn this product-ch

36、oice game, there is a clear advantage to moving first.61Chapter 1Sequential GamesAssume: DuopolyThe Advantage of Moving First62Chapter 1Sequential GamesDuopolyThe Advantage of Moving First63Chapter 1Choosing OutputFirm 17.5Firm 2112.50, 112.5056.25, 112.500, 0112.50, 56.25125, 93.7550, 7593.75, 1257

37、5, 50100, 10010157.5101564Chapter 1Choosing OutputFirm 17.5Firm 2112.50, 112.5056.25, 112.500, 0112.50, 56.25125, 93.7550, 7593.75, 12575, 50100, 10010157.51015This payoff matrix illustrates various outcomesMove together, both produce 10QuestionWhat if Firm 1 moves first?65Chapter 1Threats, Commitme

38、nts, and CredibilityStrategic MovesWhat actions can a firm take to gain advantage in the marketplace?Deter entryInduce competitors to reduce output, leave, raise priceImplicit agreements that benefit one firm66Chapter 1How To Make the First MoveDemonstrate CommitmentFirm 1 must constrain his behavio

39、r to the extent Firm 2 is convinced that he is committedThreats, Commitments, and Credibility67Chapter 1Empty ThreatsIf a firm will be worse off if it charges a low price, the threat of a low price is not credible in the eyes of the competitors.Threats, Commitments, and Credibility68Chapter 1Pricing

40、 of Computers and Word ProcessorsFirm 1High PriceLow PriceHigh PriceLow PriceFirm 2100, 8080, 10010, 2020, 069Chapter 1Pricing of Computers and Word ProcessorsFirm 1High PriceLow PriceHigh PriceLow PriceFirm 2100, 8080, 10010, 2020, 0QuestionCan Firm 1 force Firm 2 to charge a high price by threaten

41、ing to lower its price?70Chapter 1ScenarioRace Car Motors, Inc. (RCM) produces carsFar Out Engines (FOE) produces specialty car engines and sells most of them to RCMSequential game with RCM as the leaderFOE has no power to threaten to build big since RCM controls output.Threats, Commitments, and Cre

42、dibility71Chapter 1Production Choice ProblemFar Out EnginesSmall carsBig carsSmall enginesBig enginesRace Car Motors3, 63, 08, 31, 172Chapter 1QuestionHow could FOE force RCM to shift to big cars?Threats, Commitments, and Credibility73Chapter 1Modified Production Choice Problem0, 60, 08, 31, 1Far Ou

43、t EnginesSmall carsBig carsSmall enginesBig enginesRace Car Motors74Chapter 1Questions1)What is the risk of this strategy?2)How could irrational behavior give FOE some power to control output?Modified Production Choice Problem75Chapter 1Wal-Mart StoresPreemptive Investment StrategyQuestionHow did Wa

44、l-Mart become the largest retailer in the U.S. when many established retail chains were closing their doors?HintHow did Wal-Mart gain monopoly power?Preemptive game with Nash equilibrium76Chapter 1The Discount Store Preemption GameWal-MartEnterDont enterEnterDont enterCompany X-10, -1020, 00, 00, 20

45、77Chapter 1The Discount Store Preemption GameWal-MartEnterDont enterEnterDont enterCompany X-10, -1020, 00, 00, 20Two Nash equilibriumLow leftUpper rightMust be preemptive to win78Chapter 1Entry DeterrenceTo deter entry, the incumbent firm must convince any potential competitor that entry will be un

46、profitable.79Chapter 1Entry PossibilitiesIncumbentEnterStay outHigh price(accommodation)Low Price(warfare)Potential Entrant100, 20200, 0130, 070, -1080Chapter 1Entry DeterrenceScenarioIncumbent monopolist (I) and prospective entrant (X)X single cost = $80 million to build plant81Chapter 1Entry Deter

47、renceScenarioIf X does not enter I makes a profit of $200 million.If X enters and charges a high price I earns a profit of $100 million and X earns $20 million.If X enters and charges a low price I earns a profit of $70 million and X earns $-10 million.82Chapter 1Entry DeterrenceQuestionHow could I

48、keep X out?Is the threat credible?83Chapter 1Entry DeterrenceHow could I keep X out?1)Make an investment before entry (irrevocable commitment) 2)Irrational behavior84Chapter 1Entry DeterrenceIncumbentEnterStay outHigh price(accommodation)Low Price(warfare)Potential Entrant50, 20150, 0130, 070, -10Af

49、ter $50 million Early Investment85Chapter 1Entry DeterrenceIncumbentEnterStay outHigh price(accommodation)Low Price(warfare)Potential Entrant50, 20150, 0130, 070, -10After $50 million Early InvestmentWarfare likelyX will stay out86Chapter 1Airbus vs. BoeingWithout Airbus being subsidized, the payoff

50、 matrix for the two firms would differ significantly from one showing subsidization. Entry Deterrence87Chapter 1Development of a New AircraftBoeingProduceDont produceAirbus-10, -10100, 00, 00, 120ProduceDont produce88Chapter 1Development of a New AircraftBoeingProduceDont produceAirbus-10, -10100, 0

51、0, 00, 120ProduceDont produceBoeing will produceAirbus will not produce89Chapter 1Development of a AircraftAfter European SubsidyBoeingProduceDont produceAirbus-10, 10100, 00, 00, 120ProduceDont produce90Chapter 1BoeingProduceDont produceAirbus-10, 10100, 00, 00, 120ProduceDont produceAirbus will pr

52、oduceBoeing will not produceDevelopment of a AircraftAfter European Subsidy91Chapter 1Diaper WarsEven though there are only two major firms, competition is intense.The competition occurs mostly in the form of cost-reducing innovation.92Chapter 1Competing Through R & DP&GR&DNo R&DR&DNo R&DKimberly-Cl

53、ark40, 2080, -2060, 40-20, 6093Chapter 1Competing Through R & DP&GR&DNo R&DR&DNo R&DKimberly-Clark40, 2080, -2060, 40-20, 60Both spend on R&DQuestionWhy not cooperate94Chapter 1Bargaining StrategyAlternative outcomes are possible if firms or individuals can make promises that can be enforced.95Chapt

54、er 1Bargaining StrategyConsider:Two firms introducing one of two complementary goods.96Chapter 1Bargaining StrategyFirm 1Produce AProduce BProduce AProduce BFirm 240, 550, 505, 4560, 4097Chapter 1Bargaining StrategyFirm 1Produce AProduce BProduce AProduce BFirm 240, 550, 505, 4560, 40With collusion:

55、Produce A1B2Without collusion:Produce A1B2Nash equilibrium98Chapter 1Bargaining StrategySupposeEach firm is also bargaining on the decision to join in a research consortium with a third firm.99Chapter 1Bargaining StrategyFirm 1Work aloneEnter consortiumWork aloneEnterconsortiumFirm 210, 1010, 2040,

56、4020, 10100Chapter 1Bargaining StrategyFirm 1Work aloneEnter consortiumWork aloneEnterconsortiumFirm 210, 1010, 2040, 4020, 10Dominant strategyBoth enter101Chapter 1Bargaining StrategyLinking the Bargain ProblemFirm 1 announces it will join the consortium only if Firm 2 agrees to produce A and Firm

57、1 will produce B.Firm 1s profit increases from 50 to 60102Chapter 1Bargaining StrategyStrengthening Bargaining PowerCredibilityReducing flexibility103Chapter 1AuctionsAuction FormatsTraditional English (oral)Dutch auctionSealed-bidFirst priceSecond price104Chapter 1AuctionsHow to choose an auction f

58、ormatPrivate-value auction: bidders uncertain about the other bidders reservation priceCommon-value auction: bidders uncertain what the value isValuation and Information105Chapter 1AuctionsSecond-price sealed auction: bid your reservation priceEnglish auction: Bid in small increments until you reach you