MANAGERIAL ECONOMICS

LECTURE 14 - GAME THEORY

Prof. THIAGU RANGANATHAN

Chicken Game
SEQUEQNTIAL GAME
Nash Equilibrium I:
Player A: Out (−1,1)
Player B: Hard, if player A chooses In
Non-credible, threat since if A plays
In, B’s best response is Soft
B

(5,5)
A

Nash Equilibrium II:

Player A: In
Player B: Soft, if player A chooses In
Credible

(0,10)
REPEATED GAMES
Firm B
Strategy Low price High price
Firm A
Low price 0, 0 50, -40

High price -40 , 50 10, 10

Come here; Don’t make me run after you

Trigger strategy example: Both firms charge the high price, provided
neither of us has ever “cheated” in the past (charge low price).
If one firm cheats by charging the low price, the other player will
punish the deviator by charging the low price forever after.
NICE GUYS FINISH LAST – DO THEY?