Market-Share Game Equilibrium Manager 2 Strategy P=$10P$5P=$1 P=$10 5,,5 2,.8 1,9 P=$5 8,2 5,,5 2,8 P=$1 9,.1 8,2 5..5 ash equilibriun Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Market-Share Game Equilibrium Strategy P=$10 P=$5 P = $1 P=$10 .5, .5 .2, .8 .1, .9 P=$5 .8, .2 .5, .5 .2, .8 P=$1 .9, .1 .8, .2 .5, .5 Manager 2 Manager 1 Nash Equilibrium
Key Insight Game theory can be used to analyze situations where payoffs are non monetary We will, without loss of generality, focus on environments where businesses want to maximize profits a Hence. payoffs are measured in monetary units Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Key Insight: • Game theory can be used to analyze situations where “payoffs” are non monetary! • We will, without loss of generality, focus on environments where businesses want to maximize profits. Hence, payoffs are measured in monetary units
Examples of Coordination Games Industry standards size of floppy disks size of cds etc National standards electric current traffic laws etc Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Examples of Coordination Games • Industry standards size of floppy disks size of CDs etc. • National standards electric current traffic laws etc
A Coordination game in Normal form ayer Strategy A B C 0.0 0,0s10,10 2:1081000 0.0 3 00:10:1000 Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 A Coordination Game in Normal Form Strategy A B C 1 0,0 0,0 $10,$10 2 $10,$10 0,0 0,0 3 0,0 $10,$10 0,0 Player 2 Player 1
A Coordination problem Three nash equilibria! Player 2 Strategy B C 0.0 0.0 10$10 23 $10,$10 0.0 0.0 00:10,:1000 Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 A Coordination Problem: Three Nash Equilibria! Strategy A B C 1 0,0 0,0 $10,$10 2 $10,$10 0,0 0,0 3 0,0 $10, $10 0,0 Player 2 Player 1