【正文】 2020 P。2020 Pearson Education, Inc. Chapter 13 102 Diaper Wars ?Even though there are only two major firms, petition is intense ?The petition occurs mostly in the form of costreducing innovation ?Small cost savings can lead to capturing of market share ?Both firms spend significantly on Ramp。2020 Pearson Education, Inc. Chapter 13 100 Development of an Aircraft After European Subsidy Boeing Produce Don’t produce Airbus 10, 10 100, 0 0, 0 0, 120 Produce Don’t produce 169。2020 Pearson Education, Inc. Chapter 13 98 Development of a New Aircraft ? Boeing has head start ? Boeing will produce ? Airbus will not produce Boeing Produce Don’t produce Airbus 10, 10 100, 0 0, 0 0, 120 Produce Don’t produce 169。2020 Pearson Education, Inc. Chapter 13 96 Entry Deterrence ?Production of mercial airlines exhibit significant economies of scale ?Airbus and Boeing considering new aircraft ?Suppose it is not economical for both firms to produce the new aircraft 169。2020 Pearson Education, Inc. Chapter 13 94 Entry Deterrence Incumbent (I) Enter Stay out High price (acmodation) Low price (warfare) Potential Entrant (X) 50, 20 150, 0 130, 0 70, 10 169。2020 Pearson Education, Inc. Chapter 13 92 Entry Deterrence ?Could threaten X with warfare if enters market ?Not credible because once X has entered, it is in your best interest to acmodate and maintain high price 169。2020 Pearson Education, Inc. Chapter 13 90 Entry Possibilities Incumbent (I) Enter Stay out High price (acmodation) Low Price (warfare) Potential Entrant (X) ($80 fixed costs) 100, 20 200, 0 130, 0 70, 10 169。2020 Pearson Education, Inc. Chapter 13 88 The Discount Store Preemption Game ? Two Nash equilibrium ?Low left ?Upper right ? Must be preemptive to win WalMart Enter Don’t enter Enter Don’t enter Company X 10, 10 20, 0 0, 0 0, 20 169。2020 Pearson Education, Inc. Chapter 13 86 WalMart Stores’ Preemptive Investment Strategy ?How did WalMart bee the largest retailer in the . when many established retail chains were closing their doors? ?Gained monopoly power by opening in small towns with no threat of other discount petition ?Preemptive game with Nash equilibrium 169。2020 Pearson Education, Inc. Chapter 13 84 Bargaining Strategy ?Linking the Bargaining Problem ?Firm 1 announces it will join the consortium only if Firm 2 agrees to produce A and Firm 1 will produce B ?Firm 2’s best interest is to produce A with Firm 1 producing B ?Firm 1’s profit increases from 50 to 60 169。2020 Pearson Education, Inc. Chapter 13 82 Bargaining Strategy ?Suppose each firm is also bargaining on the decision to join in a research consortium with a third firm ?Dominant strategy is for both firms to enter consortium 169。2020 Pearson Education, Inc. Chapter 13 80 Bargaining Strategy Firm 1 Produce A Produce B Produce A Produce B Firm 2 40, 5 50, 50 5, 45 60, 40 169。2020 Pearson Education, Inc. Chapter 13 78 Role of Reputation ?If Far Out gets the reputation of being irrational ?They threaten to produce large engines no matter what Race Car does ?Threat might be credible because irrational people don’t always make profit maximizing decisions ?A party thought to be crazy can lead to a significant advantage 169。2020 Pearson Education, Inc. Chapter 13 76 Modified Production Choice Problem 0, 6 0, 0 8, 3 1, 1 Far Out Engines Small cars Big cars Small engines Big engines Race Car Motors 169。2020 Pearson Education, Inc. Chapter 13 74 Threats, Commitments, and Credibility ?RCM does best by producing small cars ?Knows that Far Out will then produce small engines ?Far Out prefers to make big engines ?Can Far Out induce Race Car to produce big cars instead? 169。2020 Pearson Education, Inc. Chapter 13 72 Threats, Commitments, and Credibility ?Sometimes firms can make credible threats ?Scenario ?Race Car Motors, Inc. (RCM) produces cars ?Far Out Engines (FOE) produces specialty car engines and sells most of them to RCM ?Sequential game with RCM as the leader ?FOE has no power to threaten to build big engines since RCM controls output 169。2020 Pearson Education, Inc. Chapter 13 70 Threats, Commitments, and Credibility ?Empty Threats ?If 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 petitors ?When firms know the payoffs of each other’s actions, firms cannot make threats the other firm knows they will not follow ?In our example, Firm 1 will always charge high price and Firm 2 knows it 169。2020 Pearson Education, Inc. Chapter 13 68 Threats, Commitments, and Credibility ?Strategic Move ?Action that gives a player an advantage by constraining his behavior ?Firm 1 must constrain his behavior to the extent Firm 2 is convinced that he is mitted 169。2020 Pearson Education, Inc. Chapter 13 66 Choosing Output ? This payoff matrix illustrates various outes ? Move together, both produce 10 ? If Firm 1 moves first (Q=15), best Firm 2 can do is Firm 1 Firm 2 , , 0, 0 , 125, 50, 75 , 125 75, 50 100, 100 10 15 10 15 169。2020 Pearson Education, Inc. Chapter 13 64 First Mover Advantage ?Duopoly 1 2 a n d 15 rg )(S t a c k e l b eF i rs t M o v e s F i rmF i rm/ 1 2 15 a n d Co l l u s i o nW i t h 212121????????????PP169。2020 Pearson Education, Inc. Chapter 13 62 Sequential Games ?The Advantage of Moving First ?In this productchoice game, there is a clear advantage to moving first ?The first firm can choose a large level of output, thereby forcing second firm to choose a small level ?Can show the firm’s mover advantage by revising the Stackelberg model and paring to Cour