【正文】 al case of Nash equilibrium 169。2020 Pearson Education, Inc. Chapter 13 22 The Nash Equilibrium Revisited ?A dominant strategy is stable, but in many games one or more party does not have a dominant strategy ?A more general equilibrium concept is the Nash Equilibrium introduced in Chapter 12 ?A set of strategies (or actions) such that each player is doing the best it can given the actions of its opponents 169。2020 Pearson Education, Inc. Chapter 13 21 10, 5 15, 0 20, 2 6, 8 Firm A Advertise Don’t Advertise Advertise Don’t Advertise Firm B Modified Advertising Game ? Observations ?A: No dominant strategy。2020 Pearson Education, Inc. Chapter 13 19 Dominant Strategies ?Game Without Dominant Strategy ?The optimal decision of a player without a dominant strategy will depend on what the other player does ?Revising the payoff matrix, we can see a situation where no dominant strategy exists 169。2020 Pearson Education, Inc. Chapter 13 17 Payoff Matrix for Advertising Game ? Observations ?Dominant strategy for A and B is to advertise ?Do not worry about the other player ?Equilibrium in dominant strategy Firm A Advertise Don’t Advertise Advertise Don’t Advertise Firm B 10, 5 15, 0 10, 2 6, 8 169。2020 Pearson Education, Inc. Chapter 13 15 Payoff Matrix for Advertising Game Advertise Don’t Advertise Advertise Don’t Advertise Firm B 10, 5 15, 0 10, 2 6, 8 169。2020 Pearson Education, Inc. Chapter 13 13 Acquiring a Company ?Scenario ?A must submit the proposal before the exploration oute is known ?T will not choose to accept or reject until after the oute is known only to T ?Company T will accept any offer that is greater than the per share value of the pany under current management ?How much should A offer? 169。2020 Pearson Education, Inc. Chapter 13 11 Acquiring a Company ?Scenario ?Company A: The Acquirer ?Company T: The Target ?A will offer cash for all of T’s shares ?The value and viability of T depends on the oute of a current oil exploration project 169。2020 Pearson Education, Inc. Chapter 13 9 Noncooperative vs. Cooperative Games ?“ The strategy design is based on understanding your opponent’s point of view, and (assuming your opponent is rational) deducing how he or she is likely to respond to your actions.” (Text, p. 475) 169。2020 Pearson Education, Inc. Chapter 13 7 Noncooperative vs. Cooperative Games ?Cooperative Game ?Players negotiate binding contracts that allow them to plan joint strategies ? Example: Buyer and seller negotiating the price of a good or service or a joint venture by two firms (., Microsoft and Apple) ? Binding contracts are possible 169。2020 Pearson Education, Inc. Chapter 13 5 Gaming and Strategic Decisions ?Game theory tries to determine optimal strategy for each player ?Strategy is a rule or plan of action for playing the game ?Optimal strategy for a player is one that maximizes the expected payoff ?We consider players who are rational – they think through their actions 169。2020 Pearson Education, Inc. Chapter 13 3 Topics to be Discussed ?Sequential Games ?Threats, Commitments, and Credibility ?Entry Deterrence ?Bargaining Strategy ?Auctions 169。Chapter 13 Game Theory and Competitive Strategy 169。2020 Pearson Education, Inc. Chapter 13 2 Topics to be Discussed ?Gaming and Strategic Decisions ?Dominant Strategies ?The Nash Equilibrium Revisited ?Repeated Games 169。2020 Pearson Education, Inc. Chapter 13 4 Gaming and Strategic Decisions ?Game is any situation in which players (the participants) make strategic decisions ?Ex: firms peting with each other by setting prices, group of consumers bidding against each other in an auction ?Strategic decisions result in payoffs to the players: outes that generate rewards or benefits 169。2020 Pearson Education, Inc. Chapter 13 6 Gaming and Strategic Decisions ?“ If I believe that my petitors are rational and act to maximize their own profits, how should I take their behavior into account when making my own profitmaximizing decisions?”(Text, p. 474) 169。2020 Pearson Education, Inc. Chapter 13 8 Noncooperative vs. Cooperative Games ?Noncooperative Game ?Negotiation and enforcement of binding contracts between players is not possible ? Example: Two peting firms, assuming the other’s behavior, independently determine pricing and advertising strategy to gain market share ? Binding contracts are not possible 169。2020 Pearson Education, Inc. Chapter 13 10 Gaming and Strategic Decisions ? An Example: How to buy a dollar bill 1. Auction a dollar bill 2. Highest bidder receives the dollar in return for the amount bid 3. Second highest bidder must pay the amount he or she bid but gets nothing in return 4. How much would you bid for a dollar? ? Typically bid more for the dollar when faced with loss as second highest bidder 169。2020 Pearson Education, Inc. Chapter 13 12 Acquiring a Company ?Project failure: T’s value = $0 ?Project success: T’s value = $100/share ?All outes in between equally likely ?T’s value will be 50% greater with A’s management 169。2020 Pearson Education, Inc. Chapter 13 14 Dominant Strategies ?Dominant Strategy is one that is optimal no matter what an opponent does ?An Example ? A and B sell peting products ? They are deciding whether to undertake advertising campaigns 169。2020 Pearson Education, Inc. Chapter 13 16 Payoff Matrix for Advertising Game ? Observations ?A: regardless of B, advertising is the best ?B: regardless of A, advertising is best Firm A Advertise Don’t Advertise Advertise Don’t Advertise Firm B 10, 5 15, 0 10, 2 6, 8 169。2020 Pearson Education, Inc. Chapter 13 18 Dominant Strategies ?Equilibrium in dominant strategies ?Oute of a game in which each firm is