Game Theory

Game Theory.

1.)So what is Game Theory and how do businesses uses games?  Here is some help from

In the text, we consider a sequential-move game in which an entrant was considering entering an industry in competition with an incumbent firm (See Figure 15-1). Consider now that the entrant, if fought, has the possibility of withdrawing from the industry (at a loss of 1 for the entrant and a gain of 8 for the incumbent), or staying at a loss of 5 for each player). What is the equilibrium of this game? Discuss if the entrant is better off with or without the ability to withdraw.

2.) Suppose your company runs a shuttle business of a hotel to and from the local airport. The costs for different customer loads are: 1 customer:  $30 2 customers: $32 3 customers: $35 4 customers: $38 5 customers: $42 6 customers: $48 7 customers: $57 8 customers: $68. What are your marginal costs for each customer load level? Q TC MC Total Rev Profit 1 30   10 -20 2 32 [a] 20 -12 3 35 [b] 30 -5 4 38 [c] 40 2 5 42 [d] 50 8 6 48 [e] 60 12 7 57 [f] 70 13 8 68 [g] 80 12

3.) Time Warner could offer the History Channel (H) and Showtime (S) individually or as a bundle of both. Suppose the reservation prices of customers 1 and 2 (the highest prices they are willing to pay) are presented in the boxes below. The cost to Time Warner is $1 per customer for licensing fees.   Preferences   Showtime History Chanel Customer 1 9 2 Customer 2 3 8

Suppose Time Warner could sell Showtime for $9, and History channel for $8, while making Showtime-History bundle available for $13. Should it use mixed bundling. i.e., sells products both separately and as a bundle? 

Your answer must include the profit with mixed bundling.

Game Theory

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