Game Theory

According to the payoff matrix, what will YELLOW do if white goes high?

• high
• low

In game theory, a situation in which one firm can gain only what another firm loses is called a:

• Nonzero-sum game

• Prisoners' dilemma

• Zero-sum game

• Predation game

What are the dominant strategies for Bright and Sparkle, respectively?

• Bright - Strategy 1; Sparkle - Strategy 1

• Bright - Strategy 1; Sparkle - Strategy 2

• Bright - Strategy 2; Sparkle - Strategy 1

• Bright - Strategy 2; Sparkle - No Dominant Strategy

• Bright - No Dominant Strategy; Sparkle - Strategy 1

If the two firms collude, Firm A’s and Firm B’s profits would be which of the following?

• Firm A $150; Firm B $50

• Firm A $100; Firm B $100

• Firm A $100; Firm B $150

• Firm A $50; Firm B $100

• Firm A $50; Firm B $50

The primary goal of a cartel is to

• increase demand to increase member profits

• increase market concentration

• decrease market concentration

• decrease supply to increase member profits

The combination where Firm A advertises and Firm B does not advertise is Nash equilibrium because

• it is best for each firm given what the other firm has chosen

• the total industry profits are maximized

• Firm A has an incentive to change its strategy and chooses not to advertise

• it is the best outcome for Firm B regardless of what firm A does

• advertising is always the best strategy for Firm A

Pam and Tara run two competing lemonade stands in a town. In the payoff matrix above, the first entry in each cell shows the profits to Pam, and the second entry in each cell shows the profits to Tara. According to the information, which of the following is true?

• If Pam sets the high price, Tara will do best by charging the low price.

• If Pam sets the low price, Tara will do best by charging the high price.

• The dominant strategy for both is to charge the high price.

• The dominant strategy for Tara is to set the low price and for Pam is to set the high price.

• Neither Tara nor Pam has a dominant strategy.

Pam and Tara run two competing lemonade stands in a town. If Pam and Tara do not collude, what will their profit be?

• Pam $40; Tara $40

• Pam $70; Tara $20

• Pam $20; Tara $70

• Pam $30; Tara $30

• Pam $70; Tara $70

Given that each firm is aware of the information in the payoff matrix, which of the following is true?

• Neither Alpha nor Beta has a dominant strategy.

• Both Alpha and Beta have a dominant strategy to price high.

• Both Alpha and Beta have a dominant strategy to price low.

• Alpha has a dominant strategy to price low, whereas Beta has a dominant strategy to price high.

• Alpha has a dominant strategy to price high, whereas Beta has no dominant strategy.

Which of the following is a Nash equilibrium?

• Both Art and Zeb will lower prices.

• Art will lower prices, and Zeb will charge the same prices.

• Art will charge the same prices, and Zeb will lower prices.

• Both Art and Zeb will charge the same prices.

• There is no Nash equilibrium.