Decisions(策略决策)

单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,*,Chapter 10,Game Theory and Competitive Strategy,Guan Xizhan,School of Management, Fudan University,E-Mail:,Topics to be Discussed,Gaming and Strategic Decisions（策略决策）,Dominant Strategies（上策，占优策略）,The Nash Equilibrium Revisited,Repeated Games（重复博弈）,1,Topics to be Discussed,Sequential Games（序贯博弈）,Threats, Commitments, and Credibility（威慑、承诺与可信性）,Entry Deterrence（进入阻止，进入威慑）,Bargaining Strategy（讨价还价策略）,2,Gaming and Strategic Decisions,“,If I believe that my competitors are rational and act to maximize their own profits, how should I take their behavior into account when making my own profit-maximizing decisions?”,3,Gaming and Strategic Decisions,Noncooperative versus Cooperative Games,Cooperative Game（合作博弈）,Players negotiate binding contracts（有约束力的契约） that allow them to plan joint strategies,Example: Buyer and seller negotiating the price of a good or service or a joint venture by two firms (i.e. Microsoft and Apple),Binding contracts are possible,4,Gaming and Strategic Decisions,Noncooperative versus Cooperative Games,Noncooperative Game,Negotiation and enforcement of a binding contract are not possible,Example: Two competing firms assuming the others behavior determine, independently, pricing and advertising strategy to gain market share,Binding contracts are not possible,5,Gaming and Strategic Decisions,Noncooperative versus Cooperative Games,“,The strategy design is based on understanding your opponents point of view, and (assuming you opponent is rational) deducing how he or she is likely to respond to your actions”,6,Gaming and Strategic Decisions,An Example: How to buy a dollar bill,1)Auction a dollar bill,2)Highest bidder receives the dollar in return for the amount bid,3)Second highest bidder must pay the amount he or she bid,Question: How much would you bid for a dollar?,7,Acquiring a Company,Scenario,Company,A,: The Acquirer,Company,T,: The Target,A,will offer cash for all of,T,s shares,What price to offer?,8,Acquiring a Company,Scenario,The value of,T,depends on the outcome of a current oil exploration project.,Failure:,T,s value = $0,Success:,T,s value = $100/share,All outcomes are equally likely,9,Acquiring a Company,Scenario,T,s value will be 50% greater with,A,s management.,A,must submit the proposal before the exploration outcome is known.,T,will not choose to accept or reject until after the outcome is known only to,T,.,How much should,A,offer?,10,Dominant Strategies,Dominant Strategy,One that is optimal no matter what an opponent does.,An Example,A & B,sell competing products,They are deciding whether to undertake advertising campaigns,11,Payoff Matrix for Advertising Game,Firm A,Advertise,Dont,Advertise,Advertise,Dont,Advertise,Firm B,10, 5,15, 0,10, 2,6, 8,12,Payoff Matrix for Advertising Game,Firm A,Advertise,Dont,Advertise,Advertise,Dont,Advertise,Firm B,10, 5,15, 0,10, 2,6, 8,Observations,A:,regardless of,B,advertising is the best,B:,regardless of,A,advertising is best,13,Payoff Matrix for Advertising Game,Firm A,Advertise,Dont,Advertise,Advertise,Dont,Advertise,Firm B,10, 5,15, 0,10, 2,6, 8,Observations,Dominant strategy for,A & B,is to advertise,Do not worry about the other player,Equilibrium in dominant strategy,14,Dominant Strategies,Game Without Dominant Strategy,The optimal decision of a player without a dominant strategy will depend on what the other player does.,15,10, 5,15, 0,20, 2,6, 8,Firm A,Advertise,Dont,Advertise,Advertise,Dont,Advertise,Firm B,Modified Advertising Game,16,10, 5,15, 0,20, 2,6, 8,Firm A,Advertise,Dont,Advertise,Advertise,Dont,Advertise,Firm B,Modified Advertising Game,Observations,A:,No dominant strategy; depends on,B,s actions,B:,Advertise,Question,What should,A,do? (Hint: consider,Bs,decision,17,The Nash Equilibrium Revisited,Dominant Strategies,“Im doing the best I can,no matter what you do.”,“Youre doing the best you can,no matter what I do.”,18,The Nash Equilibrium Revisited,Nash Equilibrium,“Im doing the best I can,given what you are doing”,“Youre doing the best you can,given what I am doing.”,19,Examples With A Nash Equilibrium,Two cereal companies,Market for one producer of crispy cereal,Market for one producer of sweet cereal,Each firm only has the resources to introduce one cereal,Noncooperative,The Nash Equilibrium Revisited,Product Choice Problem,20,Product Choice Problem,Firm 1,Crispy,Sweet,Crispy,Sweet,Firm 2,-5, -5,10, 10,-5, -5,10, 10,21,Product Choice Problem,Firm 1,Crispy,Sweet,Crispy,Sweet,Firm 2,-5, -5,10, 10,-5, -5,10, 10,Question,Is there a Nash equilibrium?,If not, why?,If so, how can it be reached,22,Beach Location Game,Scenario,Two competitors,Y,and,C, selling soft drinks,Beach 200 yards long,Sunbathers are spread evenly along the beach,Price,Y,= Price,C,Customer will buy from the closest vendor,23,Beach Location Game,Where will the competitors locate (i.e. where is the Nash equilibrium)?,Ocean,0,B,Beach,A,200 yards,C,24,Beach Location Game,2)Examples of this decision problem include:,Locating a gas station,Presidential elections,Ocean,0,B,Beach,A,200 yards,C,25,The Nash Equilibrium Revisited,Maximin Strategies（最大最小策略）,Scenario,Two firms compete selling software,They both use the same encryption standard (files encrypted by one software can be read by the other - advantage to consumers),26,The Nash Equilibrium Revisited,Maximin Strategies,Scenario,Firm 1,has a much larger market share than,Firm 2,Both are considering investing in a new encryption standard,27,Maximin Strategy,Firm 1,Dont invest,Invest,Firm 2,0, 0,-10, 10,20, 10,-100, 0,Dont invest,Invest,28,Maximin Strategy,Firm 1,Dont invest,Invest,Firm 2,0, 0,-10, 10,20, 10,-100, 0,Dont invest,Invest,Observations,Dominant strategy,Firm 2:,Invest,Nash equilibrium,Firm 1:,invest,Firm 2:,Invest,29,Maximin Strategy,Firm 1,Dont invest,Invest,Firm 2,0, 0,-10, 10,20, 10,-100, 0,Dont invest,Invest,Observations,If,Firm,2 does not invest,Firm 1,incurs significant losses,Firm 1,might play dont invest,Minimize losses to 10: maximin strategy,30,If both are rational and informed,Both firms invest,Nash equilibrium,The Nash Equilibrium Revisited,Maximin Strategy,31,Consider,If Player 2 is not rational or completely informed,Firm 1s,maximin strategy is to not invest,Firm,2s,maximin strategy is to invest.,If,1,knows,2,is using a maximin strategy,1,would invest,The Nash Equilibrium Revisited,Maximin Strategy,32,Prisoners Dilemma,Prisoner A,Confess,Dont Confess,Confess,Dont,Confess,Prisoner B,-5, -5,-1, -10,-2, -2,-10, -1,33,Prisoners Dilemma,Prisoner A,Confess,Dont Confess,Confess,Dont,Confess,Prisoner B,-5, -5,-1, -10,-2, -2,-10, -1,What is the:,Dominant strategy,Nash equilibrium,Maximin solution,34,Pure Strategy（纯策略）,Player makes a specific choice,Mixed Strategy（混合策略）,Player makes a random choice among two or more possible actions based on a set of chosen probabilities,The Nash Equilibrium Revisited,Mixed Strategy,35,Matching Pennies（猜硬币）,Player A,Heads,Tails,Heads,Tails,Player B,1, -1,-1, 1,1, -1,-1, 1,36,Matching Pennies,Player A,Heads,Tails,Heads,Tails,Player B,1, -1,-1, 1,1, -1,-1, 1,Observations,Pure strategy: No Nash equilibrium,Mixed strategy: Random choice is a Nash equilibrium,Would a firm set price based on random choice assumption?,37,The Battle of the Sexes,Boy,Football,Movie,Football,Movie,Girl,2,1,0,0,1,2,0,0,38,The Battle of the Sexes,Boy,Football,Movie,Football,Movie,Girl,2,1,0,0,1,2,0,0,Pure Strategy,Both play (watch) football,Both watch movie,Mixed Strategy,Boy chooses football,Girl chooses movie,39,Repeated Games,Oligopolistic firms play a,repeated game.,With each repetition of the Prisoners Dilemma, firms can develop reputations about their behavior and study the behavior of their competitors.,40,Pricing Problem,Firm 1,Low Price,High Price,Low Price,High Price,Firm 2,10, 10,100, -50,50, 50,-50, 100,41,Pricing Problem,Firm 1,Low Price,High Price,Low Price,High Price,Firm 2,10, 10,100, -50,50, 50,-50, 100,Non-repeated game,Strategy is Low,1, Low,2,Repeated game,Tit-for-tat strategy is the most profitable,42,Repeated Games,Conclusion:,With repeated game,The Prisoners Dilemma can have a cooperative outcome with tit-for-tat strategy,43,Repeated Games,Conclusion:,This is most likely to occur in a market with:,Few firms,Stable demand,Stable cost,44,Repeated Games,Conclusion,Cooperation is difficult at best since these factors may change in the long-run.,45,Oligopolistic Cooperationin the Water Meter Industry,Characteristics of the Market,Four Producers,Rockwell International (35%), Badger Meter, Neptune Water Meter Company, and Hersey Products (Badger, Neptune, and Hersey combined have about a 50 to 55% share),46,Oligopolistic Cooperationin the Water Meter Industry,Characteristics of the Market,Very inelastic demand,Not a significant part of the budget,47,Oligopolistic Cooperationin the Water Meter Industry,Characteristics of the Market,Stable demand,Long standing relationship between consumer and producer,Barrier,Economies of scale,Barrier,48,Oligopolistic Cooperationin the Water Meter Industry,Characteristics of the Market,This is a Prisoners Dilemma,Lower price to a competitive level,Cooperate,Repeated Game,Question,Why has cooperation prevailed?,49,Competition and Collusionin the Airline Industry,What Do You Think?,Is there cooperation & collusion in the airline industry?,50,Sequential Games,Players move in turn,Players must think through the possible actions and rational reactions of each player,51,Sequential Games,Examples,Responding to a competitors ad campaign,Entry decisions,Responding to regulatory policy,52,Scenario,Two new (sweet, crispy) cereals,Successful only if each firm produces one cereal,Sweet will sell better,Both still profitable with only one producer,Sequential Games,The Extensive Form（扩展形） of a Game,53,Modified Product Choice Problem,Firm 1,Crispy,Sweet,Crispy,Sweet,Firm 2,-5, -5,10, 20,-5, -5,20, 10,54,Modified Product Choice Problem,Firm 1,Crispy,Sweet,Crispy,Sweet,Firm 2,-5, -5,10, 20,-5, -5,20, 10,Question,What is the likely outcome if both make their decisions independently, simultaneously, and without knowledge of the others intentions?,55,Assume that Firm 1 will introduce its new cereal first (a sequential game).,Question,What will be the outcome of this game?,Modified Product Choice Problem,The Extensive Form of a Game,56,Sequential Games,The Extensive Form of a Game,Using a decision tree（决策树）,Work backward from the best outcome for Firm 1,The Extensive Form of a Game,57,Product Choice Game in Extensive Form,Crispy,Sweet,Crispy,Sweet,-5, -5,10, 20,20, 10,-5, -5,Firm 1,Crispy,Sweet,Firm 2,Firm 2,58,Sequential Games,The Advantage of Moving First,In this product-choice game, there is a clear advantage to moving first.,59,Sequential Games,Assume: Duopoly,The Advantage of Moving First,60,Sequential Games,Duopoly,The Advantage of Moving First,61,Choosing Output,Firm 1,7.5,Firm 2,112.50, 112.50,56.25, 112.50,0, 0,112.50, 56.25,125, 93.75,50, 75,93.75, 125,75, 50,100, 100,10,15,7.5,10,15,62,Choosing Output,Firm 1,7.5,Firm 2,112.50, 112.50,56.25, 112.50,0, 0,112.50, 56.25,125, 93.75,50, 75,93.75, 125,75, 50,100, 100,10,15,7.5,10,15,This payoff matrix illustrates various outcomes,Move together, both produce 10,Question,What if Firm 1 moves first?,63,Threats, Commitments, and Credibility,Strategic Moves,What actions can a firm take to gain advantage in the marketplace?,Deter entry,Induce competitors to reduce output, leave, raise price,Implicit agreements that benefit one firm,64,Threats, Commitments, and Credibility,How To Make the First Move,Demonstrate Commitment,Firm 1,must constrain his behavior to the extent,Firm,2,is convinced that he is committed,65,Threats, Commitments, and Credibility,Empty Threats（空头威胁）,If a firm will be worse off if it charges a low price, the threat of a low price is not credible in the eyes of the competitors.,66,Pricing of Computers and Word Processors,Firm 1,High Price,Low Price,High Price,Low Price,Firm 2,100, 80,80, 100,10, 20,20, 0,67,Pricing of Computers and Word Processors,Firm 1,High Price,Low Price,High Price,Low Price,Firm 2,100, 80,80, 100,10, 20,20, 0,Question,Can,Firm 1,force,Firm,2,to charge a high price by threatening to lower its price?,68,Threats, Commitments, and Credibility,Scenario,Race Car Motors, Inc. (RCM) produces cars,Far Out Engines (FOE) produces specialty car engines and sells most of them to RCM,Sequential game with RCM as the leader,FOE has no power to threaten to build big since,RCM,controls output.,69,Production Choice Problem,Far Out Engines,Small cars,Big cars,Small engines,Big engines,Race Car Motors,3, 6,3, 0,8, 3,1, 1,70,Question,How could FOE force RCM to shift to big cars?,Threats, Commitments, and Credibility,71,Modified Production Choice Problem,0, 6,0, 0,8, 3,1, 1,Far Out Engines,Small cars,Big cars,Small engines,Big engines,Race Car Motors,72,Questions,1)What is the risk of this strategy?,2)How could irrational behavior give FOE some power to control output?,Modified Production Choice Problem,73,Wal-Mart StoresPreemptive Investment Strategy,Question,How did Wal-Mart become the largest retailer in the U.S. when many established retail chains were closing their doors?,Hint,How did Wal-Mart gain monopoly power?,Preemptive game with Nash equilibrium,74,The Discount Store Preemption Game,Wal-Mart,Enter,Dont enter,Enter,Dont enter,Company X,-10, -10,20, 0,0, 0,0, 20,75,The Discount Store Preemption Game,Wal-Mart,Enter,Dont enter,Enter,Dont enter,Company X,-10, -10,20, 0,0, 0,0, 20,Two Nash equilibrium,Low left,Upper right,Must be preemptive to win,76,Entry Deterrence,To deter entry, the incumbent firm（在位企业） must convince any potential competitor that entry will be unprofitable.,77,Entry Possibilities,Incumbent,Enter,Stay out,High price,(accommodation),Low Price,(warfare),Potential Entrant,100, 20,200, 0,130, 0,70, -10,78,Entry Deterrence,Scenario,Incumbent monopolist (,I,) and prospective entrant (,X,),X,single cost = $80 million to build plant,79,Entry Deterrence,Scenario,If,X,does not enter,I,makes a profit of $200 million.,If,X,enters and charges a high price,I,earns a profit of $100 million and,X,earns $20 million.,If,X,enters and charges a low price,I,earns a profit of $70 million and,X,earns $-10 million.,80,Entry Deterrence,Question,How could,I,keep,X,out?,Is the threat credible?,81,Entry Deterrence,How could,I,keep,X,out?,1)Make an investment before entry (irrevocable commitment),2)Irrational behavior,82,Entry Deterrence,Incumbent,Enter,Stay out,High price,(accommodation),Low Price,(warfare),Potential Entrant,50, 20,150, 0,130, 0,70, -10,After $50 million Early Investment,83,Entry Deterrence,Incumbent,Enter,Stay out,High price,(accommodation),Low Price,(warfare),Potential Entrant,50, 20,150, 0,130, 0,70, -10,After $50 million Early Investment,Warfare likely,X,will stay out,84,Airbus vs. Boeing,Without Airbus being subsidized, the payoff matrix for the two firms would differ significantly from one showing subsidization.,Entry Deterrence,85,Development of a New Aircraft,Boeing,Produce,Dont produce,Airbus,-10, -10,100, 0,0, 0,0, 120,Produce,Dont produce,86,Development of a New Aircraft,Boeing,Produce,Dont produce,Airbus,-10, -10,100, 0,0, 0,0, 120,Produce,Dont produce,Boeing will produce,Airbus will not produce,87,Development of a AircraftAfter European Subsidy,Boeing,Produce,Dont produce,Airbus,-10, 10,100, 0,0, 0,0, 120,Produce,Dont produce,88,Development of a AircraftAfter European Subsidy,Boeing,Produce,Dont produce,Airbus,-10, 10,100, 0,0, 0,0, 120,Produce,Dont produce,Airbus will produce,Boeing will not produce,89,Diaper Wars,Even though there are only two major firms, competition is intense.,The competition occurs mostly in the form of,cost-reducing,innovation,.,90,Competing Through R & D,P&G,R&D,No R&D,R&D,No R&D,Kimberly-Clark,40, 20,80, -20,60, 40,-20, 60,91,Competing Through R & D,P&G,R&D,No R&D,R&D,No R&D,Kimberly-Clark,40, 20,80, -20,60, 40,-20, 60,Both spend on R&D,Question,Why not cooperate,92,Bargaining Strategy,Alternative outcomes are possible if firms or individuals can make promises that can be enforced.,93,Bargaining Strategy,Consider:,Two firms introducing one of two complementary goods.,94,Bargaining Strategy,Firm 1,Produce,A,Produce,B,Produce,A,Produce,B,Firm 2,40, 5,50, 50,5, 45,60, 40,95,Bargaining Strategy,Firm 1,Produce,A,Produce,B,Produce,A,Produce,B,Firm 2,40, 5,50, 50,5, 45,60, 40,With collusion:,Produce,A,1,B,2,Without collusion:,Produce,A,1,B,2,Nash equilibrium,96,Bargaining Strategy,Suppose,Each firm is also bargaining on the decision to join in a research consortium with a third firm.,97,Bargaining Strategy,Firm 1,Work alone,Enter consortium,Work alone,Enter,consortium,Firm 2,10, 10,10, 20,40, 40,20, 10,98,Bargaining Strategy,Firm 1,Work alone,Enter consortium,Work alone,Enter,consortium,Firm 2,10, 10,10, 20,40, 40,20, 10,Dominant strategy,Both enter,99,Bargaining Strategy,Linking the Bargain Problem,Firm 1,announces it will join the consortium only if,Firm 2,agrees to produce,A,and,Firm 1,will produce,B.,Firm 1,s profit increases from 50 to 60,100,Bargaining Strategy,Strengthening Bargaining Power,Credibility,Reducing flexibility,101,Summary,A game is cooperative if the players can communicate and arrange binding contracts; otherwise it is noncooperative.,A Nash equilibrium is a set of strategies such that all players are doing their best, given the strategies of the other players.,102,Summary,Some games have no Nash equilibrium in pure strategies, but have one or more equilibria in mixed strategies.,Strategies that are not optimal for a one-shot game may be optimal for a repeated game.,In a sequential game, the players move in turn.,103,Summary,An empty threat is a threat that one would have no incentive to carry out.,To deter entry, an incumbent firm must convince any potential competitor that entry will be unprofitable.,Bargaining situations are examples of cooperative games.,104,