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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 Summary

Explain some basic ideas in Game Theory: Dominant Strategy, Winner's Curse, Cartel, with business cases and examples.

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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 ...

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