7/27/2019 Topic 6 Managerial Application of Game Theory
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Copyright 2008 MGMT Panel, GDUF.All rights reserved.
PowerPoint Presentation by Suong Jian & Liu Yan
Guangdong University of Finance
MANAGERIALMANAGERIAL
ECONOMICSECONOMICS
1111thth EditionEdition
ByBy
PHD.PHD. SuongjianSuongjian
Office:Rm1322Office:Rm1322
Tel:13302336088Tel:13302336088
Email:[email protected]:[email protected]
Copyright 2008 MGMT Panel, GDUF.All rights reserved.
PowerPoint Presentation by Suong Jian & Liu Yan
Guangdong University of Finance
Game TheoryGame Theory
Chapter 14Chapter 14
Copyright 2008 MGMT Panel, GDUF.All rights reserved.
PowerPoint Presentation by Suong Jian & Liu Yan
Guangdong University of Finance
Chapter 14Chapter 14
OVERVIEWOVERVIEW
Game Theory Basics
Prisoners Dilemma
Nash Equilibrium
Infinitely Repeated Games
Finitely Repeated Games
Competitive Strategy Pricing Strategies
Non-price Competition
Copyright 2008 MGMT Panel, GDUF.All rights reserved.
PowerPoint Presentation by Suong Jian & Liu Yan
Guangdong University of Finance
Chapter 14Chapter 14
KEY CONCEPTSKEY CONCEPTS game theory zero-sum game positive-sum
game negative-sum game cooperative game sequential game look ahead
and extrapolate back simultaneous-move game equilibrium outcome
game-theory strategy payoff matrix Prisoners Dilemma one-shot game
repeated game dominant strategy secure strategy Nash
equilibrium
randomized strategies Nash bargaining infinitely repeated game
finitely repeated game trigger strategy end-of-game problem
multistage games first-mover advantage competitive advantage
comparative advantage limit pricing predatory pricing customer
lock-in effect network externalities market penetration pricing
non-price competition
Copyright 2008 MGMT Panel, GDUF.All rights reserved.
PowerPoint Presentation by Suong Jian & Liu Yan
Guangdong University of Finance
Game Theory Basics Types of Games
Zero-sum game: offsetting gains/losses.
Positive sum game: potential for mutual gain.
Negative-sum game: potential for mutual loss.
Cooperative games: joint action is favored.
Role of Interdependence
Sequential games: moves in succession.
Simultaneous-move game: coincident moves.
Strategic ConsiderationsCopyright 2008 MGMT Panel, GDUF.All
rights reserved.
PowerPoint Presentation by Suong Jian & Liu Yan
Guangdong University of Finance
Prisoners Dilemma Classic Riddle
Rational behavior can give suboptimal result.
Rationality can hamper beneficial cooperation.
Business Application Dominant strategy givesDominant strategy
gives best result regardless
of moves by other players.
Secure strategy gives best result assumingthe worst possible
scenario.
Broad Implications
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Copyright 2008 MGMT Panel, GDUF.All rights reserved.
PowerPoint Presentation by Suong Jian & Liu Yan
Guangdong University of Finance
Non-price Competition
Advantages of Non-price Competition Non-price competition can be
an effective means for
growing market share and profitability in the face ofentrenched
rivals.
Nonprice competition can be difficult to thwart.
Optimal Level of Advertising
Profit-maximizing level of non-price competition isfound by
setting activity MR = MC.
Set MRA= MCAto determine optimal advertising.
Optimal Advertising Example
