1. Additional Game Theory Applications Chapter 13A Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. 13A-2 A One-Time Game: Strategy and Equilibrium A one-time game A simultaneous game A positive-sum game Zero-sum game Negative-sum game A firm’s dominant strategy LO10

3. 13A-3 A One-Time Game: Strategies and Equilibrium Nash equilibrium Outcome from which neither firm wants to deviate Current strategy viewed as optimal Stable and persistent outcome LO10

4. 13A-4 Dramco’s price strategy Chipco’s price strategy AB CD $11 $5 $20 $17 $20 $5 International National 2 competitors 2 price strategies Each strategy has a payoff matrix Independent actions stimulate a response A One-Time Game LO10

5. 13A-5 Credible and Empty Threats Credible threats Threat that is believable by the other firm Can establish collusive agreements A strong enforcer can prevent cheating Can generate higher profits May be countered with threat by rival Empty threats A threat that is not believable by rival LO10

6. 13A-6 Repeated Games Repeated game is a game that recurs May cooperate and not compete strongly Rival reciprocates Examples Pepsi and Coke Boeing and Airbus Walmart and Target Nike and Adidas LO10

7. 13A-7 Repeated Games ThirstQ’s advertising strategy AB CD $10 $8 $16 $12 $16 $8 Promo budget Normal budget 2Cool’s advertising strategy ThirstQ’s advertising strategy AB CD $11 $10 $14 $13 $15 $10 Promo budget Normal budget 2Cool’s advertising strategy LO10

8. 13A-8 First-Mover Advantages Sequential game Firms apply strategies sequentially Final outcome depends on who moved first Rival must respond First-mover advantage Advantages for the firm that is first May be better prepared May preempt entry of rival LO10

9. 13A-9 Big Box strategies Huge Box strategies AB CD -$5 $0 $12 $0 $12 $0 Build Don’t build LO10 First-Mover Advantages