tsinghua 2005mba lecture 13博弈论与竞争策略

Lecture13GameTheoryandCompetitiveStrategyLecture13Slide2TopicstobeDiscussedGamingandStrategicDecisionsDominantStrategiesTheNashEquilibriumRepeatedGamesLecture13Slide3TopicstobeDiscussedSequentialGamesThreats,Commitments,andCredibilityEntryDeterrenceBargainingStrategyAuctionsLecture13Slide4GamingandStrategicDecisions“IfIbelievethatmycompetitorsarerationalandacttomaximizetheirownprofits,howshouldItaketheirbehaviorintoaccountwhenmakingmyownprofit-maximizingdecisions?”Lecture13Slide5GamingandStrategicDecisionsNoncooperativeversusCooperativeGamesCooperativeGamePlayersnegotiatebindingcontractsthatallowthemtoplanjointstrategiesExample:Buyerandsellernegotiatingthepriceofagoodorserviceorajointventurebytwofirms(i.e.MicrosoftandApple)BindingcontractsarepossibleLecture13Slide6GamingandStrategicDecisionsNoncooperativeversusCooperativeGamesNoncooperativeGameNegotiationandenforcementofabindingcontractarenotpossibleExample:Twocompetingfirmsassumingtheothersbehaviordetermine,independently,pricingandadvertisingstrategytogainmarketshareBindingcontractsarenotpossibleLecture13Slide7GamingandStrategicDecisionsNoncooperativeversusCooperativeGames“Thestrategydesignisbasedonunderstandingyouropponent’spointofview,and(assumingyouropponentisrational)deducinghowheorsheislikelytorespondtoyouractions”Lecture13Slide8GamingandStrategicDecisionsAnExample:Howtobuyadollarbill 1) Auctionadollarbill 2) Highestbidderreceivesthedollarin returnfortheamountbidLecture13Slide9GamingandStrategicDecisionsAnExample 3) Secondhighestbiddermustpaythe amountheorshebid 4) Howmuchwouldyoubidfora dollar?Lecture13Slide10AcquiringaCompanyScenarioCompanyA:TheAcquirerCompanyT:TheTargetAwilloffercashforallofT’ssharesWhatpricetooffer?Lecture13Slide11AcquiringaCompanyScenarioThevalueofTdependsontheeofacurrentoilexplorationproject.Failure:T’svalue=$0Success:T’svalue=$100/shareAllesareequallylikelyLecture13Slide12AcquiringaCompanyScenarioT’svaluewillbe50%greaterwithA’smanagement.A,mustsubmittheproposalbeforetheexplorationeisknown.TwillnotchoosetoacceptorrejectuntilaftertheeisknownonlytoT.HowmuchshouldAoffer?Lecture13Slide13KeyIdeasKnowyourstrategicsituation,whatisthegameyouareplaying?Donotimposeyourownwishesandfanciesonagame.thathasbeengiventoyou.Yourcompetitorisjustassmartasyouare!Hassameinformation,rationality,andintelligence.youcannot“outguess”youropponent.ThinkabouttheresponseofotherstoyouractionsLecture13Slide14GametheoryGametheoryisthestudyofstrategicbehaviorinsituationofconflict.Inaoligopoly,afirm’soutputchoicedependsonitspredictionofitsrival’soutputchoices.Thesestrategicchoicesarecomplexbecauseotherfirmsarealsochoosingoutputbasedontheirpredictionsoftheirrival’soutputs.Tochooseitsbestoutput,afirmmustdeterminewhatthebestchoicesofotherfirmswillbe,assumingrationalbehaviorbyallotherfirmsandthendothebestitcan.Lecture13Slide15GameTheory:ConceptAgameisageneralconcept;itincludesalmostanysituationinwhicheachdecisionmaker’sprofitsdependsonactionsofotherdecisionmakers.Thedecisionmakersarecalledtheplayers.Todescribeagame,weneedtoknowtherulesofthegame,thepossiblestrategiesofeachplayer,andthepayoffsfromeachpossiblecombinationofactions.Playersareassumedtowanttomaximizetheirpayoffs.Therulesincludetheorderofmovesbytheplayersandwhetherbindingagreementsaboutactionsarepossible.Ifnobindingagreementsareallowed,thenthegameisnon-cooperative.TheCournotmodelisexampleofanon-cooperativegame.Eachfirmindependentlymakesitsoutputchoicewithnopossibilityofenteringintobindingcommitmentswithotherfirms.Infact,mostgamesstudiedineconomicsarenon-cooperativegames.Bycontrast,inacooperativegame,firmscanmakebindingcommitmentsthatallowthemtoplanjointstrategies.Contractnegotiationsareanimportantexampleofcooperativegames.

Lecture13Slide16ThreeFactors1.Players2.Strategies3.PayoffsLecture13Slide17Typesofthegame

WithaduopolyexampleCooperativeVs.Non-cooperativeSimultaneousVs.sequentialchoiceOne-timeVs.repeatedgamesLecture13Slide18Prisoners’DilemmaTwoprisonershavebeenaccusedofcollaboratinginacrime.Theyareinseparatejailcellsandcannotcommunicatewitheachother.Eachhasbeenaskedtoconfesstothecrime.Ifbothprisonersconfess,eachwillreceiveaprisontermoffiveyears.Ifneitherconfesses,theprosecution’scasewillbedifficulttomake,sotheprisonerscanexpecttopleabargainandreceiveatermoftwoyears.Ontheotherhand,ifoneprisonerconfessesandotherdoesnot,theonewhoconfesseswillreceiveatermofonlyoneyear,whiletheotherwillgotoprisonfortenyears.Ifyouwereoneoftheseprisoners,whatwouldyoudo---confessornotconfess?PrisonerBConfessDon’tConfessConfessDon’tConfessPrisonerA-5,-5-1,-10-10,-1-2,-2Lecture13Slide19DominantStrategiesDominantStrategyI’mdoingthebestIcannomatterwhatyoudo.You’redoingthebestyoucannomatterwhatIdo.AnExampleA&BsellcompetingproductsTheyaredecidingwhethertoundertakeadvertisingcampaignsLecture13Slide20PayoffMatrixforAdvertisingGameFirmAAdvertiseDon’tAdvertiseAdvertiseDon’tAdvertiseFirmB10,515,010,26,8Lecture13Slide21PayoffMatrixforAdvertisingGameFirmAAdvertiseDon’tAdvertiseAdvertiseDon’tAdvertiseFirmB10,515,010,26,8ObservationsA:regardlessofB,advertisingisthebestB:regardlessofA,advertisingisbestLecture13Slide22PayoffMatrixforAdvertisingGameFirmAAdvertiseDon’tAdvertiseAdvertiseDon’tAdvertiseFirmB10,515,010,26,8ObservationsDominantstrategyforA&BistoadvertiseDonotworryabouttheotherplayerEquilibriumindominantstrategyLecture13Slide23DominantStrategiesGameWithoutDominantStrategyTheoptimaldecisionofaplayerwithoutadominantstrategywilldependonwhattheotherplayerdoes.Lecture13Slide2410,515,020,26,8FirmAAdvertiseDon’tAdvertiseAdvertiseDon’tAdvertiseFirmBModifiedAdvertisingGameLecture13Slide2510,515,020,26,8FirmAAdvertiseDon’tAdvertiseAdvertiseDon’tAdvertiseFirmBModifiedAdvertisingGameObservationsA:Nodominantstrategy;dependsonB’sactionsB:AdvertiseQuestionWhatshouldAdo?(Hint:considerB’sdecisionLecture13Slide26TheNashEquilibriumNashEquilibrium“I’mdoingthebestIcangivenwhatyouaredoing”“You’redoingthebestyoucangivenwhatIamdoing.”Lecture13Slide27ExamplesWithANashEquilibriumTwocerealcompaniesMarketforoneproducerofcrispycerealMarketforoneproducerofsweetcerealEachfirmonlyhastheresourcestointroduceonecerealNoncooperativeTheNashEquilibriumRevisitedProductChoiceProblemLecture13Slide28ProductChoiceProblemFirm1CrispySweetCrispySweetFirm2-5,-510,10-5,-510,10Lecture13Slide29ProductChoiceProblemFirm1CrispySweetCrispySweetFirm2-5,-510,10-5,-510,10QuestionIsthereaNashequilibrium?Ifnot,why?Ifso,howcanitbereachedLecture13Slide30BeachLocationGameScenarioTwocompetitors,YandC,sellingsoftdrinksBeach200yardslongSunbathersarespreadevenlyalongthebeachPriceY=PriceCCustomerwillbuyfromtheclosestvendorLecture13Slide31BeachLocationGame

Wherewillthecompetitorslocate (i.e. whereistheNashequilibrium)?Ocean0BBeachA200yardsCLecture13Slide32BeachLocationGame

2) Examplesofthisdecisionproblem include:LocatingagasstationPresidentialelectionsOcean0BBeachA200yardsCLecture13Slide33TheNashEquilibriumMaximinStrategiesScenarioTwofirmscompetesellingfile-encryptionsoftwareTheybothusethesameencryptionstandard(filesencryptedbyonesoftwarecanbereadbytheother-advantagetoconsumers)Lecture13Slide34TheNashEquilibriumMaximinStrategiesScenarioFirm1hasamuchlargermarketsharethanFirm2BothareconsideringinvestinginanewencryptionstandardLecture13Slide35MaximinStrategyFirm1Don’tinvestInvestFirm20,0-10,1020,10-100,0Don’tinvestInvestLecture13Slide36MaximinStrategyFirm1Don’tinvestInvestFirm20,0-10,1020,10-100,0Don’tinvestInvestObservationsDominantstrategyFirm2:InvestNashequilibriumFirm1:investFirm2:InvestLecture13Slide37MaximinStrategyFirm1Don’tinvestInvestFirm20,0-10,1020,10-100,0Don’tinvestInvestObservationsIfFirm2doesnotinvest,Firm1incurssignificantlossesFirm1mightplaydon’tinvestMinimizelossesto10--maximinstrategyLecture13Slide38IfbotharerationalandinformedBothfirmsinvestNashequilibriumTheNashEquilibriumMaximinStrategyLecture13Slide39ConsiderIfPlayer2isnotrationalorcompletelyinformedFirm1’smaximinstrategyistonotinvestFirm

2’smaximinstrategyistoinvest.If1knows2isusingamaximinstrategy,1wouldinvestTheNashEquilibriumMaximinStrategyLecture13Slide40Prisoners’DilemmaPrisonerAConfessDon’tConfessConfessDon’tConfessPrisonerB-5,-5-1,-10-2,-2-10,-1Lecture13Slide41Prisoners’DilemmaPrisonerAConfessDon’tConfessConfessDon’tConfessPrisonerB-5,-5-1,-10-2,-2-10,-1Whatisthe:DominantstrategyNashequilibriumMaximinsolutionLecture13Slide42ExampleTwocompanieswanttoopenbusinessinanewarea.TheycanchooseHotelorsupermarket.ResultingprofitaregivenbythepayoffmatrixWhates,ifany,areNashequilibrium?Ifthemanagerofeachfirmsconservativeandeachfollowsamaximinstrategy,whatbethee?Whatisthecooperativee?Whichbenefitsmostfromthecooperative?Howmuchneedtooffertheothertopersuadeittocollude?-50,-80900,500200,80060,80Firm2HotelSupermarketHotelSupermarketFirm1Lecture13Slide43PureStrategyPlayermakesaspecificchoiceMixedStrategyPlayermakesarandomchoiceamongtwoormorepossibleactionsbasedonasetofchosenprobabilitiesTheNashEquilibriumMixedStrategyLecture13Slide44MatchingPenniesPlayerAHeadsTailsHeadsTailsPlayerB1,-1-1,11,-1-1,1Lecture13Slide45MatchingPenniesPlayerAHeadsTailsHeadsTailsPlayerB1,-1-1,11,-1-1,1ObservationsPurestrategy:NoNashequilibriumMixedstrategy:RandomchoiceisaNashequilibriumWouldafirmsetpricebasedonrandomchoiceassumption?Lecture13Slide46TheBattleoftheSexesJimWrestlingOperaWrestlingOperaJoan2,10,01,20,0Lecture13Slide47TheBattleoftheSexesJimWrestlingOperaWrestlingOperaJoan2,10,01,20,0PureStrategyBothwatchwrestlingBothwatchoperaMixedStrategyJimchooseswrestlingJoanchooseswrestlingLecture13Slide48ExampleA1212B30,4070,5080,8020,100WhatistheNashequilibriumoftherighttable?IfthereisnoNashequilibriuminvolvingpurestrategies,checkthatplayersareindifferentamongtheactionsusedintheirmixedstrategiesinequilibrium.Calculatetheexpectedpayoffs.Lecture13Slide49博弈模型与竞争策略警卫与窃贼的博弈警卫睡觉,小偷去偷,小偷得益B,警卫被处分-D。警卫不睡，小偷去偷，小偷被抓受惩处-P,警卫不失不得。警卫睡觉，小偷不偷，小偷不失不得，警卫得到休闲R.警卫不睡，小偷不偷，都不得不失。警卫睡觉不睡觉偷不偷窃贼B,-D-P,0

0,R0,0Lecture13Slide50博弈模型与竞争策略混合博弈的两个原则不能让对方知道或猜到自己的选择，因此必须在决策时采取随机决策；二选择每种策略的概率要恰好使对方无机可乘，对方无法通过有针对性的倾向于某种策略而得益Lecture13Slide51博弈模型与竞争策略警卫是不是睡觉决定于小偷偷不偷的概率，而小偷偷不偷的概率在于小偷猜警卫睡不睡觉小偷一定来偷，警卫一定不睡觉；小偷一定不来偷，警卫一定睡觉。警卫的得益与小偷偷不偷的概率有关Lecture13Slide52博弈模型与竞争策略若小偷来偷的概率为偷

警卫的得益为：

R(1-偷)+(-D)偷

小偷认为警卫不会愿意得益为负，最多为零。

即R/D=偷/(1-偷)

小偷偷不偷的概率等于R与D的比率

01小偷偷的概率警卫睡觉的期望得益RDP偷Lecture13Slide53博弈模型与竞争策略同样的道理警卫偷懒的概率（睡觉）睡

决定了小偷的得益为：

(-P)(1-睡)+(B)睡

警卫也认为小偷不会愿意得益为负，最多为零。

即B/P=(1-睡)/睡

警卫偷不偷懒的概率取决于B与P的比率

有趣的激励悖论管理经济学考什么？

01警卫偷懒的概率小偷的期望得益P睡PBLecture13Slide54RepeatedGamesOligopolisticfirmsplayarepeatedgame.WitheachrepetitionofthePrisoners’Dilemma,firmscandevelopreputationsabouttheirbehaviorandstudythebehavioroftheircompetitors.Lecture13Slide55PricingProblemFirm1LowPriceHighPriceLowPriceHighPriceFirm210,10100,-5050,50-50,100Lecture13Slide56PricingProblemFirm1LowPriceHighPriceLowPriceHighPriceFirm210,10100,-5050,50-50,100Non-repeatedgameStrategyisLow1,Low2RepeatedgameTit-for-tatstrategyisthemostprofitableLecture13Slide57RepeatedGamesConclusion:WithrepeatedgameThePrisoners’Dilemmacanhaveacooperativeewithtit-for-tatstrategyLecture13Slide58RepeatedGamesConclusion:Thisismostlikelytooccurinamarketwith:FewfirmsStabledemandStablecostLecture13Slide59RepeatedGamesConclusionCooperationisdifficultatbestsincethesefactorsmaychangeinthelong-run.Lecture13Slide60OligopolisticCooperation

intheWaterMeterIndustryCharacteristicsoftheMarketFourProducersRockwellInternational(35%),BadgerMeter,NeptuneWaterMeterCompany,andHerseyProducts(Badger,Neptune,andHerseycombinedhaveabouta50to55%share)Lecture13Slide61OligopolisticCooperation

intheWaterMeterIndustryCharacteristicsoftheMarketVeryinelasticdemandNotasignificantpartofthebudgetLecture13Slide62CharacteristicsoftheMarketStabledemandLongstandingrelationshipbetweenconsumerandproducerBarrierEconomiesofscaleBarrierOligopolisticCooperation

intheWaterMeterIndustryLecture13Slide63CharacteristicsoftheMarketThisisaPrisoners’DilemmaLowerpricetoacompetitivelevelCooperateRepeatedGameQuestionWhyhascooperationprevailed?OligopolisticCooperation

intheWaterMeterIndustryLecture13Slide64WhatDoYouThink?Istherecooperation&collusionintheairlineindustry?CompetitionandCollusion

intheAirlineIndustryLecture13Slide65ExampleABCAdvertiseDon’tAdvertiseAdvertiseDon’tadvertiseNBC100,100300,0200,2000,300Righttableshowsa

Prisoner’sDilemmagameinwhichtheplayersarethetwonetworksABCandNBC.Theirstrategiesareadvertiseornotadvertisetheirnewfalllineup.Iftheydon’tadvertise,theywillsplitthemarketandtheywillhavesavedonadvertisingexpenditure.Iftheybothadvertising,ratingsarehigh,butsoarecosts,soprofitsfall.Ifoneadvertisesandtheotherdoesn’t,thereisacleargaintobemade.Profitsareindicatedinthepayoffmatrixinmillionsofdollarsperyear.Lecture13Slide66Example(Cont.)WhatistheNashequilibriumifthisgameisplayedonlyonce?Nowconsiderarepeatedgamebasedonabovetable.SupposeABCrefusestoadvertiseinthefirstperiodandcontinuesnottoadvertiseaslongasNBCdoesn’tadvertise.ButifNBCfailsevenoncetocooperate,ABCwillrevertforevertothesafepolicyofadvertising.Althoughthisissupposedtobeaninfinitelyrepeatedgame,considerjustaten-periodgamemakethealgebraeasier.CalculatethesumofNBC’sprofitsovertimeifitadoptsaparallelstrategy.ThencalculatethesumofNBC’sprofitsovertimeifittakesadvantageofABC’swillingnesstocorporatebychoosingtoadvertiseinthefirstperiod.Comparingthesetwoestreams,whatwillNBCdo?Lecture13Slide67SequentialGamesPlayersmoveinturnPlayersmustthinkthroughthepossibleactionsandrationalreactionsofeachplayerLecture13Slide68SequentialGamesExamplesRespondingtoacompetitor’sadcampaignEntrydecisionsRespondingtoregulatorypolicyLecture13Slide69ScenarioTwonew(sweet,crispy)cerealsSuccessfulonlyifeachfirmproducesonecerealSweetwillsellbetterBothstillprofitablewithonlyoneproducerSequentialGamesTheExtensiveFormofaGameLecture13Slide70ModifiedProductChoiceProblemFirm1CrispySweetCrispySweetFirm2-5,-510,20-5,-520,10Lecture13Slide71ModifiedProductChoiceProblemFirm1CrispySweetCrispySweetFirm2-5,-510,20-5,-520,10QuestionWhatisthelikelyeifbothmaketheirdecisionsindependently,simultaneously,andwithoutknowledgeoftheother’sintentions?Lecture13Slide72AssumethatFirm1willintroduceitsnewcerealfirst(asequentialgame).QuestionWhatwillbetheeofthisgame?ModifiedProductChoiceProblemTheExtensiveFormofaGameLecture13Slide73SequentialGamesTheExtensiveFormofaGameUsingadecisiontreeWorkbackwardfromthebesteforFirm1TheExtensiveFormofaGameLecture13Slide74ProductChoiceGameinExtensiveFormCrispySweetCrispySweet-5,-510,2020,10-5,-5Firm1CrispySweetFirm2Firm2Lecture13Slide75SequentialGamesTheAdvantageofMovingFirstInthisproduct-choicegame,thereisaclearadvantagetomovingfirst.Lecture13Slide76SequentialGamesAssume:DuopolyTheAdvantageofMovingFirstLecture13Slide77SequentialGamesDuopolyTheAdvantageofMovingFirstLecture13Slide78ChoosingOutputFirm17.5Firm2112.50,112.5056.25,112.500,0112.50,56.25125,93.7550,7593.75,12575,50100,10010157.51015Lecture13Slide79ChoosingOutputFirm17.5Firm2112.50,112.5056.25,112.500,0112.50,56.25125,93.7550,7593.75,12575,50100,10010157.51015ThispayoffmatrixillustratesvariousesMovetogether,bothproduce10QuestionWhatifFirm1movesfirst?Lecture13Slide80Threats,Commitments,andCredibilityStrategicMovesWhatactionscanafirmtaketogainadvantageinthemarketplace?DeterentryInducecompetitorstoreduceoutput,leave,raisepriceImplicitagreementsthatbenefitonefirmLecture13Slide81HowToMaketheFirstMoveDemonstrateCommitmentFirm1mustconstrainhisbehaviortotheextentFirm

2isconvincedthatheiscommittedThreats,Commitments,andCredibilityLecture13Slide82EmptyThreatsIfafirmwillbeworseoffifitchargesalowprice,thethreatofalowpriceisnotcredibleintheeyesofthecompetitors.Threats,Commitments,andCredibilityLecture13Slide83PricingofComputers

andWordProcessorsFirm1HighPriceLowPriceHighPriceLowPriceFirm2100,8080,10010,2020,0Lecture13Slide84PricingofComputers

andWordProcessorsFirm1HighPriceLowPriceHighPriceLowPriceFirm2100,8080,10010,2020,0QuestionCanFirm1forceFirm

2tochargeahighpricebythreateningtoloweritsprice?Lecture13Slide85ScenarioRaceCarMotors,Inc.(RCM)producescarsFarOutEngines(FOE)producesspecialtycarenginesandsellsmostofthemtoRCMSequentialgamewithRCMastheleaderFOEhasnopowertothreatentobuildbigsinceRCMcontrolsoutput.Threats,Commitments,andCredibilityLecture13Slide86ProductionChoiceProblemFarOutEnginesSmallcarsBigcarsSmallenginesBigenginesRaceCarMotors3,63,08,31,1Lecture13Slide87QuestionHowcouldFOEforceRCMtoshifttobigcars?Threats,Commitments,andCredibilityLecture13Slide88ModifiedProductionChoiceProblem0,60,08,31,1FarOutEnginesSmallcarsBigcarsSmallenginesBigenginesRaceCarMotorsLecture13Slide89Questions 1) Whatistheriskofthisstrategy? 2) Howcouldirrationalbehaviorgive FOEsomepowertocontroloutput?ModifiedProductionChoiceProblemLecture13Slide90Wal-MartStores’

PreemptiveInvestmentStrategyQuestionHowdidWal-MartethelargestretailerintheU.S.whenmanyestablishedretailchainswereclosingtheirdoors?HintHowdidWal-Martgainmonopolypower?PreemptivegamewithNashequilibriumLecture13Slide91TheDiscountStorePreemptionGameWal-MartEnterDon’tenterEnterDon’tenterCompanyX-10,-1020,00,00,20Lecture13Slide92TheDiscountStorePreemptionGameWal-MartEnterDon’tenterEnterDon’tenterCompanyX-10,-1020,00,00,20TwoNashequilibriumLowleftUpperrightMustbepreemptivetowinLecture13Slide93EntryDeterrenceTodeterentry,theincumbentfirmmustconvinceanypotentialcompetitorthatentrywillbeunprofitable.Lecture13Slide94EntryPossibilitiesIncumbentEnterStayoutHighprice(modation)LowPrice(warfare)PotentialEntrant100,20200,0130,070,-10Lecture13Slide95EntryDeterrenceScenarioIncumbentmonopolist(I)andprospectiveentrant(X)Xsinglecost=$80milliontobuildplantLecture13Slide96EntryDeterrenceScenarioIfXdoesnotenterImakesaprofitof$200million.IfXentersandchargesahighpriceIearnsaprofitof$100millionandXearns$20million.IfXentersandchargesalowpriceIearnsaprofitof$70millionandXearns$-10million.Lecture13Slide97EntryDeterrenceQuestionHowcouldIkeepXout? Isthethreatcredible?Lecture13Slide98EntryDeterrenceHowcouldIkeepXout? 1) Makeaninvestmentbeforeentry (irrevocablecommitment) 2) IrrationalbehaviorLecture13Slide99EntryDeterrenceIncumbentEnterStayoutHighprice(modation)LowPrice(warfare)PotentialEntrant50,20150,0130,070,-10After$50millionEarlyInvestmentLecture13Slide100EntryDeterrenceIncumbentEnterStayoutHighprice(modation)LowPrice(warfare)PotentialEntrant50,20150,0130,070,-10After$50millionEarlyInvestmentWarfarelikelyXwillstayoutLecture13Slide101Airbusvs.BoeingWithoutAirbusbeingsubsidized,thepayoffmatrixforthetwofirmswoulddiffersignificantlyfromoneshowingsubsidization.EntryDeterrenceLecture13Slide102DevelopmentofaNewAircraftBoeingProduceDon’tproduceAirbus-10,-10100,00,00,120ProduceDon’tproduceLecture13Slide103DevelopmentofaNewAircraftBoeingProduceDon’tproduceAirbus-10,-10100,00,00,120ProduceDon’tproduceBoeingwillproduceAirbuswillnotproduceLecture13Slide104DevelopmentofaAircraft

AfterEuropeanSubsidyBoeingProduceDon’tproduceAirbus-10,10100,00,00,120ProduceDon’tproduceLecture13Slide105BoeingProduceDon’tproduceAirbus-10,10100,00,00,120ProduceDon’tproduceAirbuswillproduceBoeingwillnotproduceDevelopmentofaAircraft

AfterEuropeanSubsidyLecture13Slide106DiaperWarsEventhoughthereareonlytwomajorfirms,competitionisintense.Thecompetitionoccursmostlyintheformofcost-reducing

innovation.Lecture13Slide107CompetingThroughR&DP&GR&DNoR&DR&DNoR&DKimberly-Clark40,2080,-2060,40-20,60Lecture13Slide108CompetingThroughR&DP&GR&DNoR&DR&DNoR&DKimberly-Clark40,2080,-2060,40-20,60BothspendonR&DQuestionWhynotcooperateLecture13Slide109BargainingStrategyAlternativeesarepossibleiffirmsorindividualscanmakepromisesthatcanbeenforced.Lecture13Slide110BargainingStrategyConsider:Twofirmsintroducingoneoftwocomplementarygoods.Lecture13Slide111BargainingStrategyFirm1ProduceAProduceBProduceAProduceBFirm240,550,505,4560,40Lecture13Slide112BargainingStrategyFirm1ProduceAProduceBProduceAProduceBFirm240,550,505,4560,40Withcollusion:ProduceA1B2Withoutcollusion:ProduceA1B2NashequilibriumLecture13Slide113BargainingStrategySupposeEachfirmisalsobargainingonthedecisiontojoininaresearchconsortiumwithathirdfirm.Lecture13Slide114BargainingStrategyFirm1WorkaloneEnterconsortiumWorkaloneEnterconsortiumFirm210,1010,2040,4020,10Lecture13Slide115BargainingStrategyFirm1WorkaloneEnterconsortiumWorkaloneEnterconsortiumFirm210,1010,2040,4020,10DominantstrategyBothenterLecture13Slide116BargainingStrategyLinkingtheBargainProblemFirm1announcesitwilljointheconsortiumonlyifFirm2agreestoproduceAandFirm1willproduceB.Firm1’sprofitincreasesfrom50to60Lecture13Slide117BargainingStrategyStrengtheningBargainingPowerCredibilityReducingflexibilityLecture13Slide118NegotiatingGame:AnExampleYouplaythefollowingbargaininggame.PlayerAmovesfirst,andmakesPlayerBanofferforthedivisionofRMB100withofferinunitsofRMB1.(Forexample,PlayerAcouldsuggestthatshetakesRMB60andPlayerBtakesRMB40).PlayerBcanacceptorrejecttheoffer.Ifherejects,theamountofmoneyavailabledropstoRMB90,andhethenmakesanofferforthedivisionofthisamount.IfPlayerArejectsthisoffer,theamountofmoneydropstoRMB80,andPlayerAmakesanofferforitsdivision.Bothplayerarerational,fullyinformed,andwanttomaximizetheirpayoffs.Questions:(1)IfyouarePlayer