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Industrial Organization- BCOR 310

FALL 2015
Professors: Mohamed S. Haddad and brahim Guizani
February, 28 2015

Problem Set 2 (Unit 3: Introduction to Game

Theory)

1. Discussion questions

a. Are all dominant strategy equilibria also Nash equilibria? Are all Nash
equilibria also dominant strategy equilibria?

b. Can you suggest a business strategy that is equivalent to the death

threat strategy used by organized crime to prevent squealing?

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2. Problems

1. Do
2 problem all odd-numbered problems (pages 239-243 WJ) and check you
answer on pages 244-246.

I.

Suppose that a game have the following extensive form; what is the
equilibrium in the game? Can jerry undertake an action to prevent this
outcome?
B

Enter

Stay Out

J1

J2

Maintain current
Agressive if entry
Agressive Maintain
if entry current

(1,0)

(-0.5,1)

(0,1)

(0,1)

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II.

There are two movie theaters in town. They agree to charge $p per ticket in
order to maximize joint profit. However each theater must consider whether
to cheat on the agreement and offer 2-for1 ticket price to its customers.
Consider th payoff matric below, depicting their payoffs in a game played
once.

Charge $9

Offer 2-for-1 deal

Charge $9

(4000,4000)

(1000,6000)

Offer 2-for-1 deal

(6000,1000)

(3000,3000)

i.

Determine if either theater has a dominant strategy. Solve for (if

any) the pure strategies Nash equilibria of the game.

ii.

Solve for (if any) the mixed-strategy Nash equilibria of the game.

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iii.

Is this game a prisoners dilemma? Why and why not?