P
paryas.bhatia
Member
I am not able to understand the game theory part of chapter 8. Please explain in some simple way.
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Hi,
Perhaps you could be a bit more specific about what it is that you don't understand?
Anna
Perhaps you could be a bit more specific about what it is that you don't understand?
Anna
P
paryas.bhatia
Member
The matrix is very confusing. I don't understand the when will the firm choose high or low.
W
woozie.boozie
Member
-----------------------Firm B----------------------------------------------
-----------------High----------Low----------------------------------------
--------High----(6, 4)--------(2, 6)---------------------------------------
Firm A---------------------------------------------------------------------
--------Low-----(8, 0)--------(4, 2)--------------------------------------
Hey Man, suppose there's this matrix (same as page-19 of that chapter)
Now according to single move Game Theory.
The numbers in parenthesis (a,b) -> "a" represents Firm A's price and "b" represents Firm B's price.
So supposedly Firm B makes the first move of choosing his highest pay-off, 6. Which is when he'll charge low right. So as Firm B was the first one to make a move, now it's firm A's turn, who has an option to choose low or high prices. Now if firm A will go for High -> it will give only pay-off of 2, while if they go for Low -> a pay-off of 4. So they'll obvious go to Low right. Now this leaves Firm B in bad position. So they'll also choose their pay-off in such a way that'd be most profitable for them. In this case, it's better if they stick to low, as if they go for high, they'll get 0 as a pay-off as firm-A would still go low and get a pay-off of 8.
So firm A went for low either way, that'd become their dominant strategy.
Similarly do it for B, you'll get to know, low is their dominant strategy too.
Cool ? Now u can apply all the strategies, just follow this principle
Now someone please answer my question, Iv made a new thread
-----------------High----------Low----------------------------------------
--------High----(6, 4)--------(2, 6)---------------------------------------
Firm A---------------------------------------------------------------------
--------Low-----(8, 0)--------(4, 2)--------------------------------------
Hey Man, suppose there's this matrix (same as page-19 of that chapter)
Now according to single move Game Theory.
The numbers in parenthesis (a,b) -> "a" represents Firm A's price and "b" represents Firm B's price.
So supposedly Firm B makes the first move of choosing his highest pay-off, 6. Which is when he'll charge low right. So as Firm B was the first one to make a move, now it's firm A's turn, who has an option to choose low or high prices. Now if firm A will go for High -> it will give only pay-off of 2, while if they go for Low -> a pay-off of 4. So they'll obvious go to Low right. Now this leaves Firm B in bad position. So they'll also choose their pay-off in such a way that'd be most profitable for them. In this case, it's better if they stick to low, as if they go for high, they'll get 0 as a pay-off as firm-A would still go low and get a pay-off of 8.
So firm A went for low either way, that'd become their dominant strategy.
Similarly do it for B, you'll get to know, low is their dominant strategy too.
Cool ? Now u can apply all the strategies, just follow this principle
Now someone please answer my question, Iv made a new thread
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