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Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Col . . . . Col . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Win . . . . . . Mac Win . . . . . . Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 . . . . . . 4 . . . . . . 2 . . . . . . 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 . . . . 2 . . . . 4 . . . . 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Row . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Win . . . . . . Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Col . . . . Col . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Win . . . . . Mac Win . . . . . Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 . . . 4 2 . . . 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 . . 2 4 . . 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Row . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Win . . . Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Col . . . . Col . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Win . . . . . Mac Win . . . . . Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 . 4 2 . . . . 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2 4 . . 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recall ... the pesky (not really) student
David P . Myatt Tim Howard “The Pesky MBA Student Game”
Tim → London Dubai David ↓ Win Lose London Lose Win Lose Win Dubai Win Lose
Recall ... simple “Cournot” competition
An example of “Cournot” competition Two profit-maximizing firms choose outputs. Increasing output increases sales, but depresses the price from $10 down to $0: Q 1 2 3 4 5 6+ P 10 8 6 4 2 0 Firms can produce up to four units, at a marginal cost of $1.
0 1 2 3 4 0 1 -2 -3 -4 4 12 4 -4 -4 -4 0 3 2 -3 -4 3 15 9 3 -3 -3 0 5 6 3 -4 2 14 10 6 2 -2 0 7 10 9 4 1 9 7 5 3 1 0 9 14 15 12 0 0 0 0 0 0
0 1 2 3 4 0 1 -2 -3 -4 4 12 4 -4 -4 -4 0 3 2 -3 -4 3 15 9 3 -3 -3 0 5 6 3 -4 2 14 10 6 2 -2 0 7 10 9 4 1 9 7 5 3 1 0 9 14 15 12 0 0 0 0 0 0
0 1 2 3 4 · 1 · · · 4 · 4 · · · · 3 · · · 3 15 9 · · · · · 6 · · 2 · 10 6 · · · · 10 · · 1 · · 5 3 1 · · · 15 · 0 · · · 0 ·
0 1 2 3 4 · 1 · · · 4 · 4 · · · · 3 · · · 3 15 9 · · · · · 6 · · 2 · 10 6 · · · · 10 · · 1 · · 5 3 1 · · · 15 · 0 · · · 0 · If the row player moves first ... then what should he do?
Westco (row) and Eastbury’s (column) are at the ends of Oxbridge Street. 800 customers are evenly located along the eight-mile street. Bigjet and Fastair each can choose to operate up to four flights on a In addition to the price, a customer faces costs of $1 per mile route. A flight costs $10,000 to operate and carries 100 passengers. distance to a supermarket. He buys the most cost-effective option. Market researchers have obtained demand data: The supermarkets each face a constant marginal cost of $10. No. of flights 0 1 2 3 4 5 6 7 8 The two supermarkets each evaluate five different pricing points: Price 1300 1100 900 500 410 330 260 0 0 Price ∈ { 12 , 14 , 16 , 18 , 20 } Task: solve the game Tasks: (i) build the game; and (ii) find any Nash equilibria. Burak (think: “buyer”) and Shashank (think: “seller”) negotiate. They both make claims for slices of a pie (think “value of a deal”) Roy (row) and Chantal (column) sell gin and tonic. They choose worth $100. If the claims add up to $100 or less, then they get what their prices, and each pays a constant MC of $10 per bottle. they ask. If they are too greedy, then they receive nothing. Gin and tonic are complements, and so the sales of Roy and Chantal Task (i): build and solve this “pie slicing” game. are determined by the combing gin-and-tonic price: Now the pie size is uncertain. Model this size using a normal Sales = 100 − ( Price of Gin + Price of Tonic ) . distribution with mean $100. I suggest a standard deviation of $10. Roy and Chantal each evaluate five different pricing points: Task (ii): what is the impact of uncertainty about the pie size? Price ∈ { 15 , 25 , 35 , 45 , 55 } Shashank now has a back-up plan: if no agreement is reached, then instead he is able to enter another deal which is worth $40 to him. Tasks: (i) build the game; and (ii) find any Nash equilibria. Task (iii): what is the impact of this alternative on the agreement?
When is there a first or second mover advantage?
When is there a first or second mover advantage? Game Type Application Best Middle Worst Mis-coordination Pesky Student (2) NE (1) Coordination Technology (1) = (2) NE NE Strat. Substitutes Cournot; G & T (1) NE (2) Strat. Complements Pricing Substitutes (2) (1) NE
When is there a first or second mover advantage? Game Type Application Best Middle Worst Mis-coordination Pesky Student (2) NE (1) Coordination Technology (1) = (2) NE NE Strat. Substitutes Cournot; G & T (1) NE (2) Strat. Complements Pricing Substitutes (2) (1) NE But ... can move timing actually work?
When is there a first or second mover advantage? Game Type Application Best Middle Worst Mis-coordination Pesky Student (2) NE (1) Coordination Technology (1) = (2) NE NE Strat. Substitutes Cournot; G & T (1) NE (2) Strat. Complements Pricing Substitutes (2) (1) NE But ... can move timing actually work? Are sequential moves really credible?
Advantages and disadvantages to moving first or second 1 2 Changing the game: using pricing clauses 3 Moving more than once Repeated interaction ... for the airline case 4 The implicit assumptions of the rollback technique 5 Do I look good in this new dress? 6 7 Strategic communication via a grading system Disclosure 8 Signalling strength by taking a costly action 9 10 Signalling confidence: incentives v. burning money
A slightly-less simple spreadsheet tool
Recall again ...
Recall again ... supermarket competition
Westco (row) and Eastbury’s (column) are at the ends of Oxbridge Street. 800 customers are evenly located along the eight-mile street.
Westco (row) and Eastbury’s (column) are at the ends of Oxbridge Street. 800 customers are evenly located along the eight-mile street. In addition to the price, a customer faces costs of $1 per mile distance to a supermarket. He buys the most cost-effective option.
Westco (row) and Eastbury’s (column) are at the ends of Oxbridge Street. 800 customers are evenly located along the eight-mile street. In addition to the price, a customer faces costs of $1 per mile distance to a supermarket. He buys the most cost-effective option. The supermarkets begin with a constant marginal cost of $10.
Westco (row) and Eastbury’s (column) are at the ends of Oxbridge Street. 800 customers are evenly located along the eight-mile street. In addition to the price, a customer faces costs of $1 per mile distance to a supermarket. He buys the most cost-effective option. The supermarkets begin with a constant marginal cost of $10. The two supermarkets now evaluate a full range of pricing options.
Westco (row) and Eastbury’s (column) are at the ends of Oxbridge Street. 800 customers are evenly located along the eight-mile street. In addition to the price, a customer faces costs of $1 per mile distance to a supermarket. He buys the most cost-effective option. The supermarkets begin with a constant marginal cost of $10. The two supermarkets now evaluate a full range of pricing options. Westco suffers an increase in MC to $14, and loses market share. It considers a “meeting the competition” pricing clause (MCC): this means that it automatically matches a competitor’s price.
Westco (row) and Eastbury’s (column) are at the ends of Oxbridge Street. 800 customers are evenly located along the eight-mile street. In addition to the price, a customer faces costs of $1 per mile distance to a supermarket. He buys the most cost-effective option. The supermarkets begin with a constant marginal cost of $10. The two supermarkets now evaluate a full range of pricing options. Westco suffers an increase in MC to $14, and loses market share. It considers a “meeting the competition” pricing clause (MCC): this means that it automatically matches a competitor’s price. Tasks: analyze
Westco (row) and Eastbury’s (column) are at the ends of Oxbridge Street. 800 customers are evenly located along the eight-mile street. In addition to the price, a customer faces costs of $1 per mile distance to a supermarket. He buys the most cost-effective option. The supermarkets begin with a constant marginal cost of $10. The two supermarkets now evaluate a full range of pricing options. Westco suffers an increase in MC to $14, and loses market share. It considers a “meeting the competition” pricing clause (MCC): this means that it automatically matches a competitor’s price. Tasks: analyze (i) the cost rise; and
Westco (row) and Eastbury’s (column) are at the ends of Oxbridge Street. 800 customers are evenly located along the eight-mile street. In addition to the price, a customer faces costs of $1 per mile distance to a supermarket. He buys the most cost-effective option. The supermarkets begin with a constant marginal cost of $10. The two supermarkets now evaluate a full range of pricing options. Westco suffers an increase in MC to $14, and loses market share. It considers a “meeting the competition” pricing clause (MCC): this means that it automatically matches a competitor’s price. Tasks: analyze (i) the cost rise; and (ii) the impact of the MCC.
Advantages and disadvantages to moving first or second 1 2 Changing the game: using pricing clauses 3 Moving more than once Repeated interaction ... for the airline case 4 The implicit assumptions of the rollback technique 5 Do I look good in this new dress? 6 7 Strategic communication via a grading system Disclosure 8 Signalling strength by taking a costly action 9 10 Signalling confidence: incentives v. burning money
Simple Bertrand pricing, revisited
High Low 6 10 High 6 0 0 5 Low 10 5 “Bertrand” competition with two pricing points Two zero-cost firms price High or Low, where a high price of $3 generates demand for 4 units; a moderate price of $2 increases demand to 7 units; and a low price of $1 increases demand to 10 units. A lower price wins all sales, but equal prices split the market.
High Low 6 10 High 6 0 0 5 Low 10 5
High Low 6 10 High 6 0 0 5 Low 10 5
Simple Bertrand pricing, repeated
High Low 6 10 High 6 0 0 5 Low 10 5
High Low 6 10 High 6 0 0 5 Low 10 5 Repeated Games In a repeated game a simple stage game is played more than once, and the complete history of previous plays is observed at each stage.
High Low 6 10 High 6 0 0 5 Low 10 5 Repeated Games In a repeated game a simple stage game is played more than once, and the complete history of previous plays is observed at each stage. What happens if this simple Bertrand game is played only once?
High Low 6 10 High 6 0 0 5 Low 10 5 Repeated Games In a repeated game a simple stage game is played more than once, and the complete history of previous plays is observed at each stage. What happens if this simple Bertrand game is played only once? What happens if it is played twice?
High Low 6 10 High 6 0 0 5 Low 10 5 Repeated Games In a repeated game a simple stage game is played more than once, and the complete history of previous plays is observed at each stage. What happens if this simple Bertrand game is played only once? What happens if it is played twice? What happens if it is played 100 times?
High Low 6 10 High 6 0 0 5 Low 10 5 Repeated Games In a repeated game a simple stage game is played more than once, and the complete history of previous plays is observed at each stage. What happens if this simple Bertrand game is played only once? What happens if it is played twice? What happens if it is played 100 times? What happens if the repetition continues indefinitely?
Three-price Bertrand, modified
Modified “Bertrand” competition with three pricing points Two zero-cost firms price High, Moderate, or Low, where a high price of $10 generates demand for 4 units; a moderate price of $5 increases demand to 6 units; and a low price of $1 increases demand to 8 units. A lower price wins all sales, but equal prices split the market.
High Moderate Low High Moderate Low Modified “Bertrand” competition with three pricing points Two zero-cost firms price High, Moderate, or Low, where a high price of $10 generates demand for 4 units; a moderate price of $5 increases demand to 6 units; and a low price of $1 increases demand to 8 units. A lower price wins all sales, but equal prices split the market.
High Moderate Low 20 8 High 20 0 Moderate 0 4 Low 8 4 Modified “Bertrand” competition with three pricing points Two zero-cost firms price High, Moderate, or Low, where a high price of $10 generates demand for 4 units; a moderate price of $5 increases demand to 6 units; and a low price of $1 increases demand to 8 units. A lower price wins all sales, but equal prices split the market.
High Moderate Low 20 8 High 20 0 15 Moderate 15 0 4 Low 8 4 Modified “Bertrand” competition with three pricing points Two zero-cost firms price High, Moderate, or Low, where a high price of $10 generates demand for 4 units; a moderate price of $5 increases demand to 6 units; and a low price of $1 increases demand to 8 units. A lower price wins all sales, but equal prices split the market.
High Moderate Low 20 8 High 20 0 15 8 Moderate 15 0 0 0 4 Low 8 8 4 Modified “Bertrand” competition with three pricing points Two zero-cost firms price High, Moderate, or Low, where a high price of $10 generates demand for 4 units; a moderate price of $5 increases demand to 6 units; and a low price of $1 increases demand to 8 units. A lower price wins all sales, but equal prices split the market.
High Moderate Low 20 30 8 High 20 0 0 0 15 8 Moderate 30 15 0 0 0 4 Low 8 8 4 Modified “Bertrand” competition with three pricing points Two zero-cost firms price High, Moderate, or Low, where a high price of $10 generates demand for 4 units; a moderate price of $5 increases demand to 6 units; and a low price of $1 increases demand to 8 units. A lower price wins all sales, but equal prices split the market.
High Moderate Low 20 30 8 High 20 0 0 0 15 8 Moderate 30 15 0 0 0 4 Low 8 8 4
High Moderate Low 20 30 8 High 20 0 0 0 15 8 Moderate 30 15 0 0 0 4 Low 8 8 4
High Moderate Low 20 30 8 High 20 0 0 0 15 8 Moderate 30 15 0 0 0 4 Low 8 8 4
High Moderate Low · 30 · High · · · · 15 · Moderate 30 15 · · · 4 Low · · 4
High Moderate Low 20 30 · High 20 · · · 15 · Moderate 30 15 · · · 4 Low · · 4
Three-price Bertrand, repeated
High Moderate Low 20 30 8 High 20 0 0 0 15 8 Moderate 30 15 0 0 0 4 Low 8 8 4
High Moderate Low · 20 30 High 20 · · · 15 · Moderate 30 15 · · · 4 Low · · 4
High Moderate Low · 20 30 High 20 · · · 15 · Moderate 30 15 · · · 4 Low · · 4 What happens if this Bertrand game is played only once?
High Moderate Low · 20 30 High 20 · · · 15 · Moderate 30 15 · · · 4 Low · · 4 What happens if this Bertrand game is played only once? What happens if it is played twice?
High Moderate Low · 20 30 High 20 · · · 15 · Moderate 30 15 · · · 4 Low · · 4 What happens if this Bertrand game is played only once? What happens if it is played twice? What happens players are impatient?
Advantages and disadvantages to moving first or second 1 2 Changing the game: using pricing clauses 3 Moving more than once Repeated interaction ... for the airline case 4 The implicit assumptions of the rollback technique 5 Do I look good in this new dress? 6 7 Strategic communication via a grading system Disclosure 8 Signalling strength by taking a costly action 9 10 Signalling confidence: incentives v. burning money
Bigjet and Fastair operate in the same market as before.
Bigjet and Fastair operate in the same market as before. The airlines now interact repeatedly, and forever.
Bigjet and Fastair operate in the same market as before. The airlines now interact repeatedly, and forever. At the beginning of each year both airlines simultaneously choose operating schedule, by deciding now many flights to offer. When making their decisions they can look back at the past history of play.
Bigjet and Fastair operate in the same market as before. The airlines now interact repeatedly, and forever. At the beginning of each year both airlines simultaneously choose operating schedule, by deciding now many flights to offer. When making their decisions they can look back at the past history of play. The airlines discount their future profits.
Bigjet and Fastair operate in the same market as before. The airlines now interact repeatedly, and forever. At the beginning of each year both airlines simultaneously choose operating schedule, by deciding now many flights to offer. When making their decisions they can look back at the past history of play. The airlines discount their future profits. Can the airlines collude?
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