Chapter 7 Game Theory and Competitive Strategy
Chapter 7 Game Theory and Competitive Strategy
Topics to be discussed a Gaming and strategic decisions ■ Dominant strategies a The Nash equilibrium revisited ■ Repeated games Game Theory 西南民族大学 Slide 2
Game Theory 西南民族大学 Slide 2 Topics to be Discussed ◼ Gaming and Strategic Decisions ◼ Dominant Strategies ◼ The Nash Equilibrium Revisited ◼ Repeated Games
Topics to be discussed ■ Sequential games Threats, Commitments, and credibility ■ Entry Deterrence ■ Bargaining strategy ■ Auctions Game Theory 西南民族大学 Slide 3
Game Theory 西南民族大学 Slide 3 Topics to be Discussed ◼ Sequential Games ◼ Threats, Commitments, and Credibility ◼ Entry Deterrence ◼ Bargaining Strategy ◼ Auctions
Gaming 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? Game Theory 西南民族大学 Slide 4
Game Theory 西南民族大学 Slide 4 Gaming 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?
Gaming and Strategic Decisions a Noncooperative versus Cooperative games ● Cooperative game +Players negotiate binding contracts that allow them to plan joint strategies o Example: Buyer and seller negotiating the price of a good or service or a joint venture by two firms (i.e. Microsoft and Apple o Binding contracts are possible Game Theory 西南民族大学 Slide 5
Game Theory 西南民族大学 Slide 5 Gaming and Strategic Decisions ◼ Noncooperative versus 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 (i.e. Microsoft and Apple) ⚫Binding contracts are possible
Gaming and Strategic Decisions Noncooperative versus Cooperative Games ● Noncooperative game .Negotiation and enforcement of a binding contract are not possible o Example: Two competing firms assuming the others behavior determine independently, pricing and advertising strategy to gain market share o Binding contracts are not possible Game Theory 西南民族大学 Slide 6
Game Theory 西南民族大学 Slide 6 Gaming and Strategic Decisions ◼ Noncooperative versus Cooperative Games ⚫ Noncooperative Game ◆Negotiation and enforcement of a binding contract are not possible ⚫Example: Two competing firms assuming the others behavior determine, independently, pricing and advertising strategy to gain market share ⚫Binding contracts are not possible
Gaming and Strategic decisions a Noncooperative versus Cooperative Games The strategy design is based on understanding your opponent s point of view, and(assuming you opponent is rational deducing how he or she is likely to respond to your actions Game Theory 西南民族大学 Slide 7
Game Theory 西南民族大学 Slide 7 Gaming and Strategic Decisions ◼ Noncooperative versus Cooperative Games ⚫ “The strategy design is based on understanding your opponent’s point of view, and (assuming you opponent is rational) deducing how he or she is likely to respond to your actions
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 Game Theory 西南民族大学 Slide 8
Game Theory 西南民族大学 Slide 8 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
Gaming and Strategic decisions ■ An Example Second highest bidder must pay the amount he or she bid 4) How much would you bid for a dollar? Game Theory 西南民族大学 Slide 9
Game Theory 西南民族大学 Slide 9 Gaming and Strategic Decisions ◼ An Example 3) Second highest bidder must pay the amount he or she bid 4) How much would you bid for a dollar?
Acquiring a Company a Scenario o Company A: The Acquirer ● Company: The Target o A will offer cash for all of s shares a What price to offer Game Theory 西南民族大学Side10
Game Theory 西南民族大学 Slide 10 Acquiring a Company ◼ Scenario ⚫ Company A: The Acquirer ⚫ Company T: The Target ⚫ A will offer cash for all of T’s shares ◼ What price to offer?
