Payoff matrix, Game Theory

1. The publishing industry in the country of Font, where the local currency is the stet, is dominated by two companies, the Arial Book Co. and Verdana Works Ltd.. Currently, both of these companies rely on the sales of paper books to earn profits.

Recent trade figures published by the central government of Font have shown that there are an increasing number of e-readers being imported into Font. Owners of these e-readers then import e-books from the neighbouring country of Calibri. The management of both Arial and Verdana are now considering the publishing of e-books.

Arial has determined that if they start publishing e-books they will make a profit of 6 million stets per year if Verdana does not publish e-books and 5 million stets per year if Verdana does publish e-books. If they do not go into the e-book market, Arial feels that they will still make a profit of 1 million stets per year if Verdana does publish e-books and a profit of 2 million stets per year if Verdana does not publish e-books.

Verdana, on the other hand, has estimated that if they start to publish e-books, they will make a profit of 4 million stets if Ariel does not publish e-books and 3 million stets if Ariel does publish e-books. If they do not go into the e-book market, Verdana feels that they will make a profit of 1 million stets per year if Arial does publish e-books and a profit of 1.5 million e-books if Arial does not publish e-books.

a. Complete the payoff matrix below.

 

 

 

Arial Book Co.

 

 

Publish e-books

Not publish e-books

 

Verdana Works Ltd.

Publish e-books

Arial ______ stets

Verdana ____stets

 

Arial _____ stets

Verdana ____stets

 

 

Not publish e-books

Arial ______ stets

Verdana ____stets

Arial ______ stets

Verdana ____stets

b. Which strategy will Arial Book Co. follow? Will they decide to publish e-books, or not publish e-books? Is this a dominant strategy? Explain briefly.

c. Which strategy will Verdana Works Ltd. follow? Will they decide to publish e-books, or not publish e-books? Is this a dominant strategy? Explain briefly.

d. What is the Nash equilibrium? Is this a prisoner's dilemma? Explain briefly.

A well-liked Fontian author, Bodini Cambria, has just been awarded a prestigious international literary honour. In the past, whenever a Fontian author has been awarded this honour, there has been a marked increase in the sales of that author's previous publications and the next book which is published has always had higher sales than any of the author's previous works. This year, Ms. Cambria has a new book ready for publication but she is insisting that it be published by a publishing house which only publishes paper books, not e-books. In the past, Ms. Cambria has had books published by both Arial and Verdana. Arial and Verdana have both estimated that whichever publishing house negotiates the publishing rights to Ms. Cambria's new book will gain an additional 3 million stets in the coming year.  Ms. Cambria realises that this is probably the last book which she will write in her career, so is prepared to share the benefits from its publication between Arial and Verdana if neither of them publish e-books.

e. Using this new information, complete the payoff matrix below.

 

 

Arial Book Co.

 

 

Publish e-books

Not publish e-books

 

Verdana Works Ltd.

Publish e-books

Arial ______ stets

Verdana ____stets

 

Arial _____ stets

Verdana ____stets

 

 

Not publish e-books

Arial ______ stets

Verdana ____stets

Arial _____ stets

Verdana ___stets

 

f. With this new information, which strategy will Arial Book Co. follow? Will they decide to publish e-books, or not publish e-books? Is this a dominant strategy? Explain briefly.

g. With this new information, which strategy will Verdana Works Ltd. follow? Will they decide to publish e-books, or not publish e-books? Is this a dominant strategy? Explain briefly.

Posted Date: 2/21/2013 1:58:28 AM | Location : United States







Related Discussions:- Payoff matrix, Assignment Help, Ask Question on Payoff matrix, Get Answer, Expert's Help, Payoff matrix Discussions

Write discussion on Payoff matrix
Your posts are moderated
Related Questions
Rules of Snake Eyes (small variation on game called Craps in USA) Player rolls two dice. On the first roll if the total of the dice is 2 (snake eyes): player wins and rece

A bidding increment is defined by the auctioneer as the least amount above the previous bid that a new bid must be in order to be adequate to the auctioneer. For example, if the in

Identification may be established either by the examination of the specification of the structural model, or by the examination of the reduced form of the model. Traditionally

A strategy is weakly dominant if, no matter what the other players do, the strategy earns a player a payoff a minimum of as high as the other strategy, and, the strategy earns a st

The best reply dynamic is usally termed the Cournot adjustment model or Cournot learning after Augustin Cournot who first proposed it in the context of a duopoly model. Each of two

Two animals are fighting over a prey. The prey is worth v to each animal. The cost of fighting is c1 for the first animal (player 1) and c2 for the second animal (player 2). If the

1. Consider two firms producing an identical product in a market where the demand is described by p = 1; 200 2Y. The corresponding cost functions are c 1 (y 1 ) = y 2 1 and c 2

A game frequently displayed in tv police dramas. 2 partners in crime are separated into separate rooms at the police station and given an identical deal. If one implicates the oppo

GAME 1 Claim a Pile of Dimes Two players Aand B are chosen. The instructor places a dime on the table. Player A can say Stop or Pass. If Stop, then A gets the dime and the gam

An auction during which many (more than one) things are offered for sale. Mechanisms for allocating multiple units embody discriminatory and uniform worth auctions.