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INTERMEDIATE MICROECONOMICS II (ECON 2111) ASSIGNMENT#4 (Chapter 13: Game Theory and Competitive Strategy) DATELINE: 16 FEBRUARY 2011 QUESTION 1

TV1 and TV3 are competing for viewer ratings in the 8:00-9:00 P.M. and 9:00-10:00 P.M. slots on a given weeknight. Each has two shows to fill this time period and is juggling its lineup. Each can choose to put its “bigger” show first or to place it second in the 9:00-10:00 P.M. slot. The combination of decisions leads to the following “ratings points” results: TV3 First First TV1 Second 15, 15 20, 30 Second 30, 10 18, 18

a. b. c. d.

Find the Nash equilibria for this game, assuming that both stations make their decisions at the same time. If each station is risk averse and uses a maximin strategy, what will be the resulting equilibrium? What will be the equilibrium if TV1 can make its selection first? If TV2 goes first? Suppose the station managers meet to coordinate schedules and TV1 promises to schedule its big show first. Is this promise credible? What would be the likely outcome?

QUESTION 2

Joanna has a credit card account with Card Bank. Card Bank's available strategies are raise Joanna's credit card interest rate or do nothing. Joanna's available strategies are transfer her Card Bank account balance to another creditor or do nothing. The strategy pay-offs are indicated below. Joanna Do Nothing \$1,000; \$-1,000 \$0; \$0

Transfer Card Bank Raise Interest Rate Do Nothing \$-300; \$-100 \$-300; \$-150

a. Does either player have a dominant strategy? b. Does the game have any Nash equilibria? c. What is the maximin strategy of each player in the game?

1

QUESTION 3

Consider the game below: Player C Q=50 Q=100 37, 37 30, 40 40, 30 32, 32 37, 20 25, 15 Q=150 20, 37 15, 25 0, 0

Player R

Q=50 Q=100 Q=150

a. b. c. d.

What is the dominated strategy for each player? What is the equilibrium in this game? If R moves first, what level of output it will select and what level of output produced will be...