Game Theory Problems by Prof Girish Phatak

Q.1 Two candidates, X and Y, are competing for the councillors seat in a city municipal corporation, and X is attempting to increase his total votes at the expense of Y. The strategies available to each candidate involve personal contacts, newspaper insertions, speeches or television appearance, advertising. The increase in votes available to X, given various combinations of strategies, are given below. (Assume that this is a zero-sum game, i.e. any gain of X is a loss of votes to Y). Determine the optimal strategies that should be adopted by X during his election campaign. How many votes should X gain by adopting optimal strategy? Q.2 Vishal who has an amount of Rs.1 Lakh is planning to invest it among three companies. Equity shares in company A, B and C. The payoffs in terms of (i) growth in capital, and (ii) returns on the capital are known for each of the investments under each of the three economic conditions which may prevail, that is recession, growth and stability. Assuming that Vishal must make his choice among the three portfolios for a period of one year in advance, his expectations of the net earning (in Rs. 000) of his Rs. 1 Lakh portfolio after one year is represented by the following matrix. Determine the optimal strategies for investment and the expected present return for the investor under such a policy. Q.3 Even though there are several manufacturers of scooters, two firms with brand names Janata and Praja,control their market in western India. If both manufacturers make changes in the model in the same year,then their respective market share remain constant. Likewise,if neither makes model changes,then also their market share remain constant. The payoff matrix in terms of increased/decreased % market share under different possible conditions is given.
JANATA PRAJA No Change No Change Minor Change Major Change 0 3 8 Minor Change -4 0 1 Major Change -10 5 0

1) Find the value of the game. 2) What change should Janata consider if this info is available?

Q.4 A steel company is negotiating with its union for revision of wages to its employees. The management, with the help of a mediator, has prepared a payoff matrix shown below, Plus sign represents wage increase, while negative stands for wage decrease. Union has also constructed a table which is comparable to that developed by management. The management does not have any knowledge about game theory to select the best strategy for the firm. What game value and strategies are available to the opposing group?

Company strategy

Union Strategy U1 U2 2.7 1.6 1.2 1.4 U3 3.5 0.8 1.5 1.9 U4 0.2 0.8 1.3 0

C1 C2 C3 C4

2.5 2 1.4 3

Q.5 A software company calculated the market share of two products against its major competitor having three products and found out the impact of additional advertisement in any one of its products against the other. Company B B2 7 12

Company A A1 A2

B1 6 20

B3 15 10

What is the best strategy for the company as well as the competitor? What is the pay off obtained by the company and the competitor in the long run? Use graphical method to obtain the solution. Q.6 Assume that two forms are competing for the market share for a particular product. Each firm is considering what promotional strategy to employ for the coming period. Assume that the following payoff matrix describes the increase in market share for firm A and the decrease in market share for Firm B. Determine the optimal strategies for each firm. Firm B No promotion 5 10 20

Firm A No promotion Moderate promotion Much promotion

Moderate promotion 0 6 15

Much promotion -10 2 10

Q.7 Assume that 2 firms are competing for market share of a particular product. Each firm is considering what promotional strategy to employ for the coming product. Assume that the following payoff matrix describes the increase in market share for firm A and decrease in market share for firm B. As strategy No promotion No promotion Moderate promotion Price cut 0 12 20 Bs strategy Moderate promotion 2 8 15 High promotion -15 -4 6

(a) Determine optimal strategies for both firms (b) Determine the value of this game and state whether it is strictly determinable & fair (c) State whether as a manager of firm B, you would adopt a policy described in (a). Why or why not? (d) State whether solution strategies obtained in (a) above would necessarily maximize profit for either of them. Q.8 Two competitors are competing for the similar product. The payoff matrix in terms of their advertising plan is as follows:

Competitor A

Competitor B Small advt 50 95 65

Large advt Medium advt Large advt 70 80 Medium advt 90 60 Small advt 105 90 Find optional strategies and value of the game.

Q.9 The management of a corporation is in the process of deciding whether to negotiate with the striking union now or delay. The decision is difficult because the management does not know the union leaderships position. The union leaders may be adamant and may insist on their original demands, they may be ready to compromise or they may be ready to yield and accept the original management offer. The matrix of pay-off to the management, as management sees it, is (in Rs 1 million units).

Union position B1 Adamant -2 5 B2 Compromise 1 -2 B3 Yield 2 -3

A1 Negotiate A2 Delay

a) Solve management problem b) What should be the unions strategy? Discuss the implications of a conclusion to adopt a random strategy Q.10 Two companies XYZ and POQ are operating in a duopolistic market .XYZ produce a higher quality product than POQ does, though their prices are equal. There are two critical factors price decrease quality increase available to both of them. Based on following information, determine the strategies for them that are optimal. Also determine the value of the game. If both the companies decrease their prices ,XYZ will take away 20 % of the business from POQ , where as if a price decrease by XYZ is countered by quality by POQ , then POQ shall take 5% of the business from its competitor. A quality increase by XYZ accompanied by a price decrease by POQ shall cause 12% shift in the favour of the later. In case of quality increase by both the companies, 6 % of the market would shift in favour of XYZ. Q.11 A car manufacturer, Hindustan Motors Company, in a competitive market, has plant which can produce 5 models of cars in any desired ratio. The companys profit depends upon the models of cars produced by its competitor, Indian Motor Company, and are given in the following table ( the figures are in lacs of rupees ). Indian Motor Company s Model Hindustan Motors Cos Model
J1 J2 J3 J4 J5 K1 3 5 2 6 2 K2 4 2 1 4 1 K3 2 7 4 2 9 K4 8 4 5 3 4

Although the management of the Hindustan Motors co. Knows the models Indian Motors can produce (along with the resulting pay-off), it does not know what model(s) would actually be produced and sold by that company. The management wants to maximise the profits. What should its strategy be? Q .12 Firm X is fighting for its life against the determination of firm Y to drive it out of the industry. Firm X has the choice of increasing price, leaving it unchanged, or lowering it. Firm Y has the same three options. Firm Xs gross sales in the event of each of the pairs of choices are shown below. Firm Ys pricing strategies Firm Xs Increase in price Do not change Reduce price pricing Increase in prise 90 80 110 strategies Do not change 110 100 90
Reduce price 120 70 80

Assumin g firm X as the maximising one, formulate the problem as a linear programming problem. Find the value of the game by using the method.

Q.13 The effectivity of advertisement in different media by two competitive firms A and B is given by the pay-off matrix (in Rs. 000) as follows:

FIRM A Radio Television Press

Radio 3 -1 2

FIRM B Television -2 4 2

Press 4 2 6

a. Test whether there is a saddle point and a pure strategy for optimum returns, with reasons. b. Use dominance property to evaluate the mixed strategies of A and B and the value of the game. Test the results from As as well as Bs point of view.

Q.14 There are two companies A and B in a certain city. Both companies have similar reputation and the total number of customers is equally divided between the two companies. Both the companies want to attract a greater number of customers by using different media of advertisement. By seeing the market trend, the company A constructed the following pay-off matrix where numbers in the matrix indicate a gain or loss of customers to it. Find the optimal strategies for both companies and also the value of the game. FIRM B FIRM A Newspaper Radio TV Newspaper 40 50 -17 Radio 10 25 -10 TV 100 30 60 The effectivity of advertisement in different media by two competitive firms A and B is given by the pay-off matrix (in Rs. 000) as follows: a. Test whether there is a saddle point and a pure strategy for optimum returns, with reasons. b. Use dominance property to evaluate the mixed strategies of A and B and the value of the game. Test the results from As as well as Bs point of view.