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V   V    


   
 30 40 -80
 0 15 -20
 90 20 50

Determine optimal strategies and worth of such strategies for


both ABC and XYZ.
Volution :-
The game matrix, with row minima and column maxima
V   V     
 

    
 30 40 -80 -80
 0 15 -20 -20
 90 20 50 20
 90 40 50

Ò  Ò
 
Ò Ò 
 

Evidently, saddle point does not exist. Now ,we can see that row 3
dominates row 2, and column 3 dominates column 1. Deleting RЇ and
CІ,the game reduces to the order 2 2 ,as shown in next slide.
 
 40 -80
 20 50

ith usual meaning of the symbols used, we have

X= aЇЇ -aЇІ = 50 - 20 = 30 =1/5.


(aІІ+aЇЇ)-(aІЇ+aЇІ) (40+50)-(-80+20) 150

Y= aЇЇ -aІЇ = 50 ʹ(-80) = 130 = 13/15.


(aІІ+aЇЇ)-(aІЇ+aЇІ) (40+50)-(-80+20) 150

V = (aІІ aЇЇ) ʹ (aІЇ aЇІ) = (40 50) +(80 20) = 3600 = 24 .


(aІІ+aЇЇ)-(aІЇ+aЇІ) (40+50)-(-80+20) 150
Thus Optimal strategies are :

Newspaper Radio Television

For ABC : 1/5 0 4/5

For XYZ : 0 13/15 2/15

Thus the value of game = 24.


Example 15.16
A Company is currently involved in negotiations with its union on
the upcoming wage contract. ith an aid of an outside mediator,
the table below was constructed by the management group. The
pluses are to be interpreted as proposed wage increases while a
minus figure indicates that a wage reduction is proposed . The
mediator informs the management groups that he has been in
touch with the union and that they have constructed a table that
is comparable to the table developed by the management. Both
the company and the union must decide on an overall strategy
before negotiations begin. The management group understands
the relationship of company strategies to union strategies in the
following table but lacks specific knowledge of game theory to
select the best strategy (or strategies) for the firm. Assist the
management on this problem. hat game value and strategies
are available to the opposing groups?
Conditional costs to company

 (In Lac Rs)


      
UІ UЇ UЈ UЉ
CІ +0.25 +0.27 +0.35 -0.02
CЇ +0.02 +0.16 +0.08 +0.08
CЈ +0.14 +0.12 +0.15 +0.13
CЉ +0.30 +0.14 +0.19 0.00
Vince the company represents the ͞minimising ͞ and the union
the ͞maximising player ͞,we shall recast the pay-off matrix (by
taking transpose of given matrix) as follows:

 (In Lac Rs)


     
CІ CЇ CЈ CЉ
UІ +0.25 +0.20 +0.14 +0.30
UЇ +0.27 +0.16 +0.12 +0.14
UЈ +0.35 +0.08 +0.15 +0.19
UЉ -0.02 +0.08 +0.13 0.00
This game has no saddle point.
e observe that all entries in the third row of this matrix are
greater than ,or equal to, the corresponding entries in the
fourth row . Thus ,fourth row is dominated by the third row and
hence can be deleted .
Deleting it we get,

 (In Lac Rs)


     
CІ CЇ CЈ CЉ
UІ +0.25 +0.20 +0.14 +0.30
UЇ +0.27 +0.16 +0.12 +0.14
UЈ +0.35 +0.08 +0.15 +0.19

In this matrix ,the first column is dominated both by the


second and the third columns; and the fourth column is
dominated by the third column .Deleting the dominated
columns.
The matrix is reduced to the following:

 (In Lac Rs)


     
CЇ CЈ
UІ +0.20 +0.14
UЇ +0.16 +0.12
UЈ +0.08 +0.15

Here the second row is dominated by the first . Deleting this


row we get the following matrix of the order 2 x 2,and obtain
the solution to the game analytically.
 (In Lac Rs)
     
CЇ CЈ
UІ +0.20 +0.14
UЈ +0.08 +0.15

If x be the probability with which the union adopts policy UІ and


Y be the probability of adoption of CЇ by the company ,we
have
x= 0.15-0.08 = 7 ;
(0.20+0.15) ʹ (0.08+0.14) 13
y= 0.15 ʹ 0.14 = 1 ; and
(0.20+0.15)- (0.08+0.14) 13
V = 0.20 0.15 ʹ 0.08 0.14 = 0.0188 = 47
(0.20 + 0.15)ʹ(0.08 + 0.14) 0.1300 325
Thus , optimal strategy for the company is (0,1/13,12/13,0); for
the union it is (7/13,0,6/13,0) and the game value is
47/325(representing increased wages).
Example 15.1 (N.D. Vohra)
Two leading firms ,Nirmala,Textiles Ltd. And Vwati Rayons Ltd.,
for years have been selling shirting which is but a small part of
both firms total sales. The marketing Director of Nirmala
Textiles raised the question ,͟hat should the firm͛s strategies
be in terms of advertising for the product in Question ?͟ The
system groups of Nirmala textiles developed the following
data for varying degrees of advertising:
(a) No advertising ,medium advertising and heavy advertising for
both firms will result in equal market share.
(b) Nirmala Textiles with no advertising :40 % of the market with
medium advertising by Vwati Rayons and 28% of the market
with heavy advertising by Vwati Rayons.
(c) ) Nirmala Textiles with medium advertising : 70% of the
market with no advertising by Vwati Rayons and 45% of the
market with heavy advertising by Vwati Rayons.
(d) ) Nirmala Textiles using heavy advertising : 75% of the market
with no advertising by Vwati Rayons and 52.5% of the market
with medium advertising by Vwati Rayons .
Based upon the above information ,answer the marketing
director,s question .
The pay-off matrix from the viewpoint of Nirmala Textiles
Ltd.,Vhowing its market sahre under several combinations of
the strategies,is given below . Also ,row minima and column
maxima have been obtained to see if saddle point exists.
Question Contd. ͙͙

V   !" V  


No. Med. Hvy. Row
Advt. Advt. Advt. Minima
bІ bЇ

 No. aІ 50 40 28 28
  Advt.
! Med. aЇ 70 50 45 45
V   Advt.
Hvy. aЈ 75 52.5 50 50*
Advt.
Column Maxima 75 52.5 50*
e observe that saddle point exists at the intersection of aЈ
and bЈ. Thus ,the optimal strategy for each one is to engage in
heavy advertising and it will result in an even distribution of
the market between the firms. Nirmala textiles Ltd͛s
marketing director should , therefore, resort to heavy
advertising .