Question

Game Theory and Strategic Choices -- End of Chapter Problem You have developed a new computer operating system and are considering whether you should enter the market and compete with Microsoft. Microsoft has the option of offering their operating system for a high price or a low price. Once Microsoft selects a price, you will decide whether you want to enter the market or not enter the market. If Microsoft charges a high price and you enter, Microsoft will earn $30 million and you will earn $10 million. If Microsoft charges a high price and you do not enter, Microsoft will earn $60 million and you will earn $0. If Microsoft charges a low price and you enter, Microsoft will earn $20 million and you will lose $5 million. If Microsoft charges a low price and you do not enter, Microsoft will earn $50 million and you will earn $0. Construct a payoff table and find the Nash equilibrium if you and Microsoft both make your decisions simultaneously.
In a simultaneous move game, Microsoft will and you will:___________

Answer 1

Answer:

Microsoft will choses High price and you will choose to enter the market .

Explanation:

The Nash equilibrium

                                                           You

                                                enter                     Don't enter

Microsoft  high price          ( $30 , $10 )              ( $60 , $0 )

Microsoft  low price            ( $20, -$5 )               ( $50, $0 )

From the Nash equilibrium the best time for you to enter the market is when Microsoft Charges a high price

While the best time for Microsoft is when it charges a high price and you do not enter the market

But considering Simultaneous Move game : Microsoft will choses High price and you will choose to enter the market .

Answer 2

Here is the payoff table:

                Enter          Don't enter  

High          30, 10         60,0

Low           20, -5        50, 0

In a simultaneous move game, Microsoft will charge a high price and you will enter the market.

Game theory studies how participants in a competitive market make the best choice for themselves.  

Nash equilibrium is the best outcome for participants in a competitive market where no player has an incentive to change their decisions.

If I enter the market, I can either earn $10 million or lose $5 million. If I don't enter the market, I would earn nothing. The best strategy for me is to enter the market because $5 million is greater than 0.

If Microsoft charges a high price, it can either earn $30 million or $60 million. If the firm charges a low price, it would earn either $20 or $50 million. The best strategy is to charge a high price.

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