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    Game Theory Question and Business Examples

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    1. Two major wireless phone companies are going to offer 4G services in the country of Uruguay. Because of county regulations each company can only offer a single plan. The companies can only offer one of three possible plans. One of the companies (South Wireless) contracted a market study to estimate the potential number of customers under each circumstance. The table below shows the results of the marketing study:

    Competitor
    Plan A Plan B Plan C
    South Wireless Plan A 1.5, 1.5 1.6, 1.4 2.6, 0.4
    Plan B 1.8, 1.6 2.0, 1.0 2.2, 0.8
    Plan C 1.2, 1.8 2.2, 0.8 2.4, 0.6

    Potential Customers in Millions

    Using your knowledge in game theory, which would be the best plan choice for South Wireless? Explain.

    2. In two hundred words, describe two applications or cases of game theory in business.

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    SOLUTION This solution is FREE courtesy of BrainMass!

    Answer: The Competitor has a dominant strategy, i.e. Plan A. The dominant strategy is the one which is better than other strategy for the Competitor, no matter how South Wireless may play.

    When South Wireless chooses Plan A, Competitor has the highest potential customer of 1.5 if it chooses Plan A (1.5>1.4>0.4).
    When South Wireless chooses Plan B, Competitor has the highest potential customer of 1.6 if it chooses Plan A (1.6>1.0>0.8).
    When South Wireless chooses Plan C, Competitor has the highest potential customer of 1.8 if it chooses Plan A (1.8>0.8>0.6).

    Hence, for the Competitor, Plan A strictly dominates Plan B, And Plan C and it is the optimal strategy.

    Given that observation, South Wireless will choose Plan B, which gives it the highest potential customer of 1.8 (1.8> 1.5>1.2)

    2. In two hundred words, describe two applications or cases of game theory in business.

    Answer:
    1. Winner's curse in common value auction.

    In a common value auction, the auctioned item is of roughly equal value to all bidders, but the bidders don't know the item's market value when they bid. Each player independently estimates the value of the item before bidding. The auction winner is the bidder with the highest bid. Since the auction item is worth roughly the same to all bidders, they are distinguished only by their respective estimates of the market value. The winner is making the highest estimate. If the average bid is assumed accurate, then the highest bidder overestimates the item's value. Hence, the winner will overpay for the item.

    Example: IPOs as bidders need to estimate the market value of a company's stock

    2. Cartel in oligopolistic industry
    A cartel is an agreement among competing firms that agree to fix prices, marketing, production etc. Cartels usually occur in industry with only a few firms or dominated by few super-sized firms.

    Behavior of cartel members is an example of a prisoner's dilemma. Each member would be able to make more profit by breaking the agreement than it could make by abiding. However, if all members break the agreement, all will be worse off.

    Example: OPEC intentions to control oil price

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com September 29, 2022, 2:48 pm ad1c9bdddf>
    https://brainmass.com/statistics/method-of-moments/game-theory-question-business-examples-580513

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