Economics of Strategy Game Theory Chapter 9 Exam Questions

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1) Use the figure. GMB and VolgaBus compete to sell 100 buses to MetroTravel, a city-owned bus company. If sealed bids are required and no illegal activities occur, what will be the outcome? Explain the process.

2) Use the figure. What is the Nash equilibrium of this pricing game?

3) You toss two coins and if heads or tails shows up, then I take $1. If only one heads shows up, then you give me $1. We play this game many times. Who comes up ahead at the end of the day?

4) What are the key managerial insights derived from game theory? Which one is the most important?

5) Use the figure. The payoffs to each firm (in billions of dollars) and an extensive form game between BP and Shell are shown in the figure. BP has 20 percent of the U.S. gasoline market share and Shell has 16 percent market share. BP and Shell are attempting to determine whether to send geologists to explore Oil Track 20.

(a) Is there a dominant strategy for Shell? What is the dominant strategy, if any, for Shell?
(b) What is the Nash equilibrium or equilibria in this game?
(c) What is a first-mover advantage? Does BP have a first-mover advantage in this game?
(d) Use the above information to advise BP on whether they should pursue a merger with Shell.

6) A and B are going to play a game twice. During both repetitions, if they both select a low price or a high price, their market share stays the same. But if one selects a low price while the other selects a high price, then the one with the low price gets more money while the one with the high price loses some market share. Based on this information, what is the most likely outcome in both periods?

7) A moves first and can go L or R. B moves second and can go R or L. If both of them end up at L or at R, A gets $1 and B gets $0. If one ends up at L and the other at R, then B gets $1 and A gets $0. What will be the equilibrium in this game?

8) What is the difference between a repeated and a nonrepeated game, and in which form is reputation an important consideration?

9) The type of game theory that is more useful for analyzing managerial decision making is

A) noncooperative games.
B) organizational architecture.
C) intrafirm decision making.
D) purely competitive outcomes.

10) In a small numbers environment, ________ is a useful managerial tool for considering rivals’ or competitors’ responses to decision making.

A) game theory
B) competitive market theory
C) risk sharing theory
D) intrafirm strategy

11) Negotiations and binding contracts are not possible between rivals in

A) noncooperative games.
B) cooperative games.
C) perfect competition.
D) single-firm monopolies.

12) Sealed bid construction contracts are examples of market games that are

A) simultaneous and nonrepeated.
B) simultaneous and repeated.
C) sequential and nonrepeated.
D) sequential and repeated.

13) We have two players A and B, where A can go L or R, and B can go T, B, or R. The payoffs are decided after this. Which of the following is a characteristic of such games?

A) dominant strategies
B) simultaneous moves
C) sequential moves
D) backward induction

14) A dominant strategy is one where one firm picks

A) a strategy only after seeing the other firm's decision.
B) a strategy that must be repeated.
C) a strategy no matter what the rival does.
D) the same strategy as the rival.

15) Use the figure.

If GMB were required to submit a single sealed bid to supply buses to MetroTravel, it would

A) submit a low price.
B) submit a high price.
C) submit neither a high nor low price.
D) split the bid—half high and half low.

16) Use the figure.

The likely outcome for a simultaneous nonrepeated bid is

A) GMB—High, VolgaBus—High.
B) GMB—Low, VolgaBus—High.
C) GMB—High, VolgaBus—Low.
D) GMB—Low, VolgaBus—Low.

17) Use the figure.

If the bus companies can expect to bid for contracts every 6–12 months for new buses, then the outcome may shift to

A) GMB—High, VolgaBus—High.
B) GMB—Low, VolgaBus—High.
C) GMB—High, VolgaBus—Low.
D) GMB—Low, VolgaBus—Low.

18) Which of the following statements is true?

A) Every game has a dominant strategy.
B) Not every game has a dominant strategy.
C) Every game has multiple Nash equilibria.
D) People never choose the strategies that result in Nash equilibrium.

19) Identify the statement that best defines Nash equilibrium.

A) It is a set of strategies in which a firm does the best it can, given the action of its rival.
B) It is a sequence of actions, where the actions are taken at each node of the game.
C) It is a set of strategies that gives a player the first-mover advantage.
D) It is a sequence of actions that are taken to influence the actions of rivals.

20) Which of the following can be used to predict the outcome of a game if there are no dominant strategies in the game?

A) secure strategy
B) nash equilibrium
C) first-mover advantage
D) prisoner’s dilemma

21) When there are large network effects of adopting a new technology, firms often feel that government regulation or joint ventures can solve the

A) problem of excessive investment.
B) coordination problem.
C) problem of excess capacity.
D) market inefficiency problem.

22) The benefit of a mixed strategy is

A) higher returns for both the players in the market.
B) lower risks for both the players in the market.
C) the element of consistency that baffles rivals.
D) the element of surprise that baffles rivals.

23) In the Battle of the Sexes game, Man likes to go to watch football, while Woman likes to go to the mall. Both of them would rather go together than go alone. They decide to show up to one of these places without contacting each other. A game like this will have

A) a dominant strategy for Man and none for Women.
B) one dominant strategy for both the players.
C) no Nash equilibrium strategies.
D) a Nash equilibrium in mixed strategies.

24) Which of the following is a difference between a pure strategy and a mixed strategy?

A) When a player chooses a specific action in a game, it is a pure strategy, while in a mixed strategy players randomize.
B) When a player assigns a probability to an action, it is a pure strategy, while in a mixed strategy players choose their actions sequentially.
C) A pure strategy has an element of surprise, while a mixed strategy can be easily predicted by rivals.
D) A pure strategy involves all players making their moves simultaneously, while a mixed strategy minimizes the losses of players.

25) Actions like entering a new market, pricing a new product, or making a bid to buy another company are all useful Nash-like managerial decisions because they are

A) repeated often and the outcome depends on the coordination of decisions with rivals.
B) not repeated often and the outcome depends on the coordination of decisions with rivals.
C) repeated often and the outcome depends on the simultaneous decisions of rivals.
D) not repeated often and the outcome depends on the simultaneous decisions of rivals.

26) Risk-averse managers often select a secure strategy that provides the

A) lowest payoff among the best payoffs.
B) highest payoff among the best payoffs.
C) lowest payoff among the worst payoffs.
D) highest payoff among the worst payoffs.

27) The process of looking at the final outcome and then reasoning back to initial decisions is called

A) managerial decision making.
B) simultaneous decision making.
C) forward induction.
D) backward induction.

28) We have two players, A and B, where A moves first and can go L or R, and B moves next and can go T, B, or R. A moves again and can go L, R, or M. The payoffs are decided after this. The best approach to solve such games is through

A) dominant strategies.
B) mixed strategies.
C) forward induction.
D) backward induction.

29) A display of a game in a tree diagram with nodes for every move by the players is a(n)

A) part of strategic moves.
B) representation of Prisoner’s Dilemma.
C) simultaneous-move game.
D) extensive-form game.

30) As Boeing and Airbus compete, Boeing selects a new and superior brake technology. Airbus prefers a different brake technology, but feels trapped into selecting the same one used by Boeing. This is due to

A) adverse selection.
B) first-mover advantage.
C) secure strategy.
D) extension form.

31) Walmart built the base of its retailing market power in small cities and towns. In most of those towns, the size of the marketplace is so small that only one large retailer can successfully exist. This resulted in

A) adverse selection.
B) first-mover advantage.
C) secure strategy.
D) extension form.

32) Actions that are taken to influence the beliefs or actions of rivals in favorable ways are

A) pure strategies.
B) mixed strategies.
C) strategic moves.
D) secure strategies.

33) As Boeing moves to select a new passive restraint safety system for its airplanes, it finds that its competitor, Airbus, opposes the move with an alternative technology. Boeing must now evaluate its strategy and determine whether

A) Airbus's alternative is credible.
B) Boeing used the circle technique to arrive at its decision.
C) the secure strategy is the best alternative.
D) Airbus should really be the first mover.

34) If a strategic move is credible, it is likely to

A) be the dominant strategy of all the players in the game.
B) change the actions of rivals.
C) result in repeated, sequential interactions.
D) result in self-enforcing outcomes.

35) Repeated market interaction, particularly when there is no end to the interaction in sight, can

A) change the dominant strategic equilibrium.
B) not change the dominant strategic equilibrium.
C) only change the equilibrium if the first mover changes.
D) result in a mixed, secure strategy.

36) Though Nash games are noncooperative, a cooperative outcome is more likely if

A) the long-run gains are greater than the short-run gains.
B) firms can easily monitor the outcomes from rivals’ defection.
C) firms expect the market relationship to last only for a short time.
D) the long-run gains are smaller than the short-run gains.

37) Though Nash games are noncooperative, a cooperative outcome is more likely if

A) the long-run gains are smaller than the short-run gains.
B) firms can easily monitor the outcomes from cooperation.
C) firms expect the market relationship to last only for a short time.
D) firms can easily monitor the outcomes from rivals’ defection.

38) Though Nash games are noncooperative, a cooperative outcome is more likely if

A) the long-run gains are smaller than the short-run gains.
B) firms can easily monitor the outcomes from a rival's defection.
C) firms expect the market relationship to last a long time.
D) firms expect the market relationship to last only for a short time.

39) Higher discount rates imply that

A) present payoffs are equal to the past payoffs.
B) both present and future payoffs are equally unimportant.
C) future payoffs are more important than present payoffs.
D) present payoffs are more important than future payoffs.