Chapter 13 Game Theory and Competitive Strategy Chapter Outline >Gaming and Strategic Decision Dominant Strategies The Nash Equilibrium Revisited Repeated Games Sequential Games Threats,Commitments,and Credibility Entry Deterrence Bargaining Strategy
Chapter 13 Game Theory and Competitive Strategy Chapter Outline ➢ Gaming and Strategic Decision ➢ Dominant Strategies ➢ The Nash Equilibrium Revisited ➢ Repeated Games ➢ Sequential Games ➢ Threats, Commitments, and Credibility ➢ Entry Deterrence ➢ Bargaining Strategy
13.1 Gaming and Strategic Decisions Game-Situation in which players (participants)make strategic decisions that take into account each other's actions and responses. Payoff-Value associated with a possible outcome of a game that generates rewards or benefits for the player. Strategy-Rule or plan of action for playing a game
13.1 Gaming and Strategic Decisions Game - Situation in which players (participants) make strategic decisions that take into account each other’s actions and responses. Payoff -Value associated with a possible outcome of a game that generates rewards or benefits for the player. Strategy - Rule or plan of action for playing a game
Optimal strategy-Strategy that maximizes player's expected payoff. Cooperative game-Game in which participants can negotiate binding contracts that allow them to plan joint strategies. Noncooperative game-Game in which negotiation and enforcement of binding contracts between players are not possible
Optimal strategy - Strategy that maximizes player’s expected payoff. Cooperative game - Game in which participants can negotiate binding contracts that allow them to plan joint strategies. Noncooperative game - Game in which negotiation and enforcement of binding contracts between players are not possible
13.2 Dominant Strategies Dominant strategy-Strategy that is optimal no matter what an opponent does. Equilibrium in dominant strategies-Outcome of a game in which each firm is doing the best it can regardless of what its competitors are doing
13.2 Dominant Strategies Dominant strategy - Strategy that is optimal no matter what an opponent does. Equilibrium in dominant strategies - Outcome of a game in which each firm is doing the best it can regardless of what its competitors are doing
Payoff Matrix for Advertising Game Firm B Advertise Don't advertise Advertise 10,5 15,0 FirmA Don't advertise 6,8 10,2
10, 5 15, 0 6, 8 10, 2 Firm B Advertise Don’t advertise Firm A Advertise Don’t advertise Payoff Matrix for Advertising Game