Gtep

GTEP-Advanced Business Economics Assignment (2012)

Module Coordinator:

Dr. Fiona Carmichael

Done By:

Badri Haris Ghent

1209523

1 (a)What is/are the Nash equilibrium(s) of the simultaneous move game below? If there is more than one equilibrium which one do you think will be the most likely outcome? Briefly explain.

Jack and Sons

| | Produce for market X | Produce for market Y |

Bunts Ltd | Produce for market X | -10, -50 | 11, 10 |

| Produce for market Y | 20, 50 | 1, 1 |

Nash equilibria:

1. {Bunts produce for Market X, Jack&Sons produce for Market Y}

2. {Bunts produce for Market Y, Jack&Sons produce for Market X}

Equilibrium 2 is the most likely outcome as both players stand to earn more (Bunts Ltd’ 20>11 and Jack&Sons’ 50>10). Here, players prefer to attain the better outcome but they will face hindrances to collude due to factors such as unclear communication, difficulty in reaching a shared objective or asymmetric information (Dixit, 1991).

(b)What is/are the Nash equilibrium(s) of the simultaneous move game below? If there is more than one equilibrium which if any do you think will be the most likely outcome? What type of game is illustrated in the payoff matrix?

John and Sons

| | Produce for market X | Produce for market Y |

Bunto Ltd | Produce for market X | 1, 1 | 5, 20 |

| Produce for market Y | 20, 5 | -10, -50 |

Nash equilibria:

{Bunto Ltd produce for Market Y, John&Sons produce for Market X}

{Bunto Ltd produce for Market X, John&Sons produce for Market Y}

The type of game illustrated is Chicken Game (Allen et al, 2007). There is no most likely outcome because of pareto improvement, as both players’ preferred strategy is to produce for market Y while the other produces for market X. There is no information about which firm will dominate and which will chicken out and...