Game Theory-Sequential Games are Played in Business All the Time – Discussion

Question Description

Game Theory-Sequential Games are Played in Business All the Time.

So what is Game Theory and how do businesses uses games?

Here is some help from Dr C. https://cdnapisec.kaltura.com/index.php/extwidget/preview/partner_id/956951/uiconf_id/38285871/entry_id/1_x4lxfbpw/embed/dynamic

Inthe text, we consider a sequential-move game in which an entrant isconsidering entering an industry in competition with an incumbent firm (See Figure 15-1). Thereare several possibilities of how this sequential game will be played.We want to use the Froeb rule of look ahead and reason back. Can andhow does the entrant succeed? Is the incumbent ever in control of thisgame? Hint, the game is the Duopoly game explained in the video on this week’s page.

PLEASE DO NOT RELY ON WIKIPEDIA, INVESTOPEDIA OR ANY OTHER PEDIA AS A REFERENCE AT ANYTIME IN THIS COURSE.

Response from one of my peers

Week 6 Discussion Board

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

Inmy opinion the entrant is better without the option to withdraw. Theequilibrium game is designed to use prediction to make the best decisionfor each person playing. They make a decision on what the otheropponent will do and this will then guide the entrants decision. Withequilibrium you companies can predict how to respond to competitors. Ifthe incumbent firm knows there is an option to withdraw they will fightthus forcing the new entrant to withdraw while taking a loss. The newentrant should also be aware that with this option the incumbent firmwill fight and they may experience losses. Knowing this information, itwill be better for the new entrant not to enter the market at all.However, to refer back to the question at hand. If they enter the marketit is better not to have the option to withdraw.

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