Question

Game Theory

Buying any type of product or good is a sequential game in which the owner of the product or good sets the price and then the buyer can buy, not buy, or counter and offer a new price.  This can be broken down into the following simple tree diagram:

However, the determination of what Price A and Price B is is often a simultaneous game played between two or more competing companies. For example:  

Taking this into consideration, imagine you are in charge of ticket sales for Drew University. You have complete autonym in setting ticket prices.  You are charged with selling tickets to four different groups: (1) High Rollers; (2) Semi-Big Shots; (3) Average People; and (4) Cheapos.  You have one other smaller university 60 miles from you (i.e., Muller Institute for Technology) that you are competing with for fans.  Based on all this information, please answer the following questions:

1. What type of market structure is Drew U. competing in and why do you believe this?

2. Describe the strategies would you take in the simultaneous game you are playing against Muller Institute for Technology to set prices and assure the highest possible profit for Drew U.  Why would you take these strategies?

Answer 1

1. The Drew university is competing in the Duopoly Market structure where two players are competing against each other.

2. Strategy to succeed in the Duopoly Market with simultaneous moves:

• The Discreate Strategy: Always look for the mutual benefits whenever facing the Prisoner’s dilemma, which is the classic example of discreate strategy
• Try and find the Nash Equilibrium for both participants
• Take the first mover advantage
• Before making any decision on price, the Drew university should consider the current strategy of the Muller institute and anticipate the future reaction.
• Do not get into the price war, as its going to benefits the none
• Identify the pay-offs and form the cartel with the competitor, so that risk can be minimized