1. Game 3 Your Value to a Game
Game Theory
Game 3
Your Value to a Game

2. Your Value to a Game You: Cable Companies:
Director of a commercial-free music video channel
Cable companies pay to carry you
You make a take-it-or-leave it offer
Cable Companies:
Each channel has $100K in value
Cable companies have varying capacities (k)
Select the k best (lowest) offers
Market 1: 50, Market 2: 30, Market 3: 20

3. the size of the pie when you are not
Your Value to a Game
Your added value =
the size of the pie when
you are in the game
minus
the size of the pie when you are not

4. Unlimited Capacity (k=50)
What is your value to the game?
What is the total value of the game?
How much should you be paid to play?

5. Class Results Most requested 100 But…some LOVE the cable company
Or 99, or 99.99
But…some LOVE the cable company
A few requested less than 50
One requested 20

6. Slightly Limited Capacity (k=30)
Perception of Bargaining Power
What is your value to the game?
What is your perceived value?
What is the total value of the game?
How much should you be paid to play?

7. Perception of Bargaining Power
Limited Capacity (k=20)
Perception of Bargaining Power
What is your value to the game?
What is the total value of the game?
How much should you be paid to play?

8. Payoff Summary k = 20 24 23 10 90 x 20 = 1800 (+224%) k = 50
Average offer: 85
Accept offers below:
100
Average accepted offer:
My profit per channel: 15
My profit:
x 37
= 555
k = 30 51 60 44 56
x 30
= 1680
(+203%)

9. Intuition By reducing capacity But: I lower your added value
I gain bargaining power
I get a better price per channel
I gain higher profits overall
But:
The value of the game is smaller

10. Best Score Sameer 100 + 50 + 15 = 165 Cameron 100 + 29 + 23 = 162
maximum profit = = 183
Sameer = 165
Cameron = 162
Alex = 160

11. Others Swinging for the fences Playing it safe
Kyle = 100
Playing it safe
Edward = 122
Playing it very very safe
Rosauri = 41