ECOS3003 Tutorial 0
1. Consider the following game. Is it a prisoners’ dilemma game – it so, why? If not, why not?
2. What is the Nash equilibrium of the following game? Is there a dominant strategy equilibrium?
3. What is a Nash equilibrium? Find all the Nash equilibria in this game.
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4. Consider an incumbent and potential entrant game. First, the entrant decides whether or not to enter the market. If the entrant does not enter the market his payoff is $10 and the incumbent’s payoff is $50. If the entrant enters the market the incumbent must decide whether to attack or acquiesce. If she attacks the payoff to the entrant and herself (the incumbent) are $8 and $12 respectively. If the incumbent acquiesces the payoff to the entrant and herself are $20 and $20.
a. What are the Nash equilibria? Please explain. What are the subgame perfect equilibria?
Now suppose that the incumbent can sign a contract at the start of the game that says “if the entrant comes into the market and I do not ‘attack’ I will pay a fine of $10.
b. What are the subgame perfect equilibria now?
c. If the parties can renegotiate after the entrant has entered the market and decide to tear up
the contract (the choices are “tear up contract” or “do not tear up contract”) what will be the outcome in the game? How can the parties prevent this from happening?
d. If all contracts (that is, agreements between the parties) were permitted, what is the optimal contract?
5. This one shot game is played 4 times. Describe all of the subgame perfect equilibrium in this game.
6. Consider a game of matching pennies. There are two players, P1 and P2. Both must simultaneously choose either H or T. If the two players make matching choices – that is, the result is (H, H) or (T, T), P2 must pay P1 $1. Alternatively, if the outcome is either (H, T) or (T, H) P1 must pay P2 $1. Find all Nash equilibria, and explain.
7. Pick a real firm or organisation. What is it primary objective? How does it go about achieving that target. What are the key challenges you think face the firm and make some recommendations about how they could overcome these challenges.
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