Games with Simultaneous Moves.ppt

Games with Simultaneous Moves Nash equilibrium and normal form games Overview In many situations, you will have to determine your strategy without knowledge of what your rival is doing at the same time Product design Pricing and marketing some new product Mergers and acquisitions competition Voting and politics Even if the moves are not literally taking place at the same moment, if your move is in ignorance of your rival’s, the game is a simultaneous game Two classes of Simultaneous Games Constant sum Pure allocation of fixed surplus Variable Sum Surplus is variable as is its allocation Constant sum games Suppose that the “pie” is of fixed size and your strategy determines only the portion you will receive. These games are constant sum games Can always normalize the payoffs to sum to zero Purely distributive bargaining and negotiation situations are classic examples Example: Suppose that you are competing with a rival purely for market share. Variable Sum Games In many situations, the size and the distribution of the pie are affected by strategies These games are called variable sum Bargaining situations with both an integrative and distributive component are examples of variable sum games Example: Suppose that you are in a negotiation with another party over the allocation of resources. Each of you makes demands regarding the size of the pie. In the event that the demands exceed the total pie, there is an impasse, which is costly. Nash Demand Game This bargaining game is called the Nash demand game. Constructing a Game Table In simultaneous move games, it is sometimes useful to construct a game table instead of a game tree. Each row (column) of the table corresponds to one of the strategies The cells of the table depict the payoffs for the row and column player respectively. Game Table – Constant Sum Game Consider the market share game described earlier. Firms choose marketing strategies for the coming campaign Row firm can choose from among: Standard, medium r