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Exercises - Game Theory Questions PDF

The document contains 7 exercises involving game theory concepts such as dominant strategies, Nash equilibria, mixed strategies, and sequential games. The exercises involve analyzing various payoff matrices to identify dominant strategies, Nash equilibria, and optimal strategies given different assumptions about whether players move simultaneously or sequentially.

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Teyma Touati
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1K views10 pages

Exercises - Game Theory Questions PDF

The document contains 7 exercises involving game theory concepts such as dominant strategies, Nash equilibria, mixed strategies, and sequential games. The exercises involve analyzing various payoff matrices to identify dominant strategies, Nash equilibria, and optimal strategies given different assumptions about whether players move simultaneously or sequentially.

Uploaded by

Teyma Touati
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Exercises – Game Theory and

Strategic Behavior
Exercise 1

1. Does either player in the following game have a


dominant strategy? If so, identify it.
2. Does either player in the following game have a
dominated strategy? If so, identify it.
3. What is the NE In this game?
Player 2
Left Middle Right
up 15, 12 14, 8 8, 10
Player 1 down 13, 11 12, 9 5, 14
Exercise 2
Consider the following game, where x > 0:

Player 2
High Price Low Price
High Price 140, 140 20, 160
Player 1
Low Price 90 + x, 90 – x 50, 50

a. For what values of x do both firms have a dominant strategy? What is the Nash
Equilibrium (or equilibria) in these cases?

b. For what values of x does only one firm have a dominant strategy? What is the
Nash Equilibrium (or equilibria) in these cases?

c. Are there any values of x such that neither firm has a dominant strategy?
Ignoring mixed strategies, is there a Nash equilibrium in such cases?
Exercise 3
ABC and XYZ are the only two firms selling gadgets in Europe. The
following table shows the profit (in millions of euros) that each firm
earns at different prices (in euros per unit). ABC’s profit is the left
number in each cell; XYZ’s profit is the right number.

Is there a unique Nash equilibrium in this game? If so, what is it? If


not, why not? Explain clearly how you arrive at your answer.
XYZ
Price 20 24 28 32
20 60, 60 68, 56 70, 50 72, 46
ABC 24 56, 68 66, 66 84, 84 88, 60
28 50, 70 64, 84 82, 82 96, 80
32 46, 72 60, 88 80, 96 92, 92
Exercise 4 (Mixed Strategy)
Consider the following baseball game where the pitcher has to
decide whether to throw a fast ball or a curve ball. The batter has
to decide whether to swing or not swing.

Batter
Swing Do not swing
Fast ball -100, 100 100, -100
Pitcher
Curve ball 100, -100 -100, 100

1. Is there a NE in pure strategies in this game?


2. Is there a mixed strategy NE in this game? If so, what is it?
Exercise 5 (Mixed Strategy)
Consider the following game.

Player 2
l r
U 12, 2 3, 9
Player 1
D 5, 8 4, 2

1. Is there a NE in pure strategies in this game?


2. Find the mixed strategy NE.
3. Suppose the payoff of Player 2 is reduced from 8 to 6, but all
other payoffs remain the same. Find all the pure and mixed
strategy NE.
Exercise 6 (Sequential-move Game)
In the mid-1990s, Value Jet wanted to enter the market serving
routes that would compete head to head with Delta Airlines in
Atlanta. Value Jet knew that Delta might respond in one of two
ways: Delta could start a price war or it could be ‘accomodating’,
keeping the price at a high level. Value jet had to decide whether it
would enter on a small scale or on a large scale. The annual profits
(in millions of dollars) associated with each strategy are
summarized in the following table:
Delta
Accomodate (High price) Price war (Low price)
Value Jet Enter on small scale 8, 40 2, 32
Enter on large scale 16, 20 4, 24
1. If Value Jet and Delta choose their strategies simultaneously,
a. What strategies would the two firms choose at the NE?
b. What would be the payoff for Value Jet? Explain.

2. Suppose that Value Jet decided to move first, entering on a small


scale. It communicated this information by issuing a public
statement announcing that it had limited aspirations in this
marketplace and had no plans to grow beyond its initial small size.

a. Analyze the sequential game in which Value Jet chooses ‘small’


or ‘large’ in the first stage and then Delta accommodates or starts
a price war in the second stage.

b. Did Value Jet enhance its profit by moving first and entering on
a small scale? If so, how much more did it earn with this strategy?
If not, explain why not?
Exercise 7 (Sequential-move Game)
Two firms are competing in an oligopolistic industry. Firm 1, the
larger of the two firms, is contemplating its capacity strategy, which
could be either ‘aggressive’ or ‘passive’. The aggressive strategy
involves a large increase in capacity aimed at increasing the firm’s
market share, while the passive strategy involves no change in the
firm’s capacity. Firm 2, the smaller competitor, is also pondering its
capacity expansion strategy; it will also choose between an
aggressive strategy and a passive strategy. The following table
shows the profits associated with each pair of choices:
Firm 2
Aggressive Passive
Aggressive 25, 9 33, 10
Firm 1 Passive 30, 13 36, 12
1. If both firms decide their strategies simultaneously, what is
the NE?

2. If Firm 1 could move first and credibly commit to its


capacity expansion strategy, what is its optimal strategy?
What will Firm 2 do?

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