Purchase Solution

This post addresses game theory using airbags at GM.

Not what you're looking for?

Ask Custom Question

According to a recent article in The Wall Street Journal, side-impact crashes are among the deadliest, accounting for nearly 10,000 deaths per year. Child safety concerns have kept auto manufacturers from making side-impact airbags standard equipment, though they are optional on most middle- to highermarket automobiles. Openly critical comments by General Motors's Ron Zarrella that other manufacturers' airbag systems inflate too powerfully and present a potential hazard to children have led to an industry wide study aimed at devising a common set of safety standards for side-impact airbag systems. Part of the trick of developing a set of standards that will protect both adults and children equally is getting the industry
to agree on a single set of standards.

Suppose that such standards are developed and that Ford and GM must simultaneously decide whether to make side-impact airbags standard equipment on all models. Sideimpact airbags raise the price of each automobile by $500. If both Ford and GM make side-impact airbags standard equipment, each company will earn profits of $1.5 billion. If neither company adopts the sideimpact airbag technology, each company will earn $0.5 billion (due to lost sales to other automakers). If one company adopts the technology as standard equipment and the other does not, the adopting company will earn a profit of $2 billion and the other company will lose $1 billion.

If you were a decision maker at GM, would you make side-impact airbags standard equipment? Explain

Purchase this Solution
Solution Summary

The solution provides the correct game for a game theory question involving GM and their use of airbags.

Solution Preview

Game written in normal form for this scenario:

FORD
...

Purchase this Solution
Free BrainMass Quizzes
Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • Game Theory- Ford and GM

    57489 Game Theory- Ford and GM Use table in attachment to answer 1. Why would Ford want to lower price while keep GM keeps it high? 2. What is the best choice in this game when GM and Ford trust each other? 3.

  • Suppose that Honda is on the verge of signing a 15-year cont

    The competitor is offering the airbags at a lower price due to new technology, the main issue is that this is a new product, although it is a comparable airbag.

  • Transfer pricing, general guideline, goal congruence

    The current market price of the airbags is $140 per unit. 1. Using the general guideline presented in the chapter, what is the minimum price at which the Airbag Division would sell airbags to the Igo Division? 2.

  • Translation, Reporting, and Prices

    In Latin America, GM is using the local currency to show profit or loss, rather than dollar amounts. This conflicts with their claim that all reporting is done in dollars. This might suggest that GM is using inflation to buttress income figures.

  • A Big Assignment for the Term-End

    How does this number game work? (Hint: Redo the number game using a variable instead of an actual number and rewrite the problem as one rational expression). How did the number game use the skill of simplifying rational expressions?

  • Multi media technology

    What are the challenges in using multimedia technology? Can video game technology be used to meet this challenge?

  • monopoly, an oligopoly and a cartel

    Where many papers need more work is in describing welfare effects, and applying game theory to the behavior of firms in Cartels. Welfare effects are measure using consumer surplus and producer surplus.

  • Game Theory - Coordination Game - Arrow Technique

    Hope this will help you understand the problem. In this post the a game theoretical coordination game is build using the hypothetical payoffs and then the equilibrium is identified using the arrow technique.

  • Danger of Airbags in Low Impact Crashes

    If auto companies did a good job of explaining to people that airbags might not be helpful in low impact crashes. This would tend to undermine the marketing value of providing airbags.

View More Related Solutions