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Strategy
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Most vexing and persistent
problems of Business man is:
Outguessing the rival
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.Outguessing the rival
In this context it is possible to approach the
analysis of competitive behavior by a more
deductive route.
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This is the approach which
Game Theory
has adopted
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Game Theory
Three Nobel Memorial Prize in Economics-1994
A Beautiful Mind
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Game Theory
The study of rational behavior among interdependent
agents
Number of strategies
Finite or infinite
Payoff situation
Constant sum or non constant sum
Pre-play negotiation:
Cooperative or non-cooperative
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If you have a Dominating strategy,
use it
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Example of Dominant Strategy
Use
strategy 1
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Look for any equilibrium
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Maximin and Minimax Strategies
Bs Strategy
1 2 3
As 4
S 50 90 18 20 18
1
T
R
A
27 5 9 95
2 5
T
E 64 30 12 20
G 3 12
y
64 90 18 95
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Prisoners Dilemma
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Prisoners Dilemma
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..Prisoners Dilemma
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Prisoners Dilemma
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Information and Strategy
Asymmetric Information
Adverse Selection
Moral Hazard
No Show Problem
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Asymmetric Information
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..Asymmetric Information
(Used Car Market)
In consumer goods Markets the seller
frequently knows more about the product
than does the buyer.
For example, an individual seller who has
owned a vehicle for a sustained period of
time, know much more about the car than
does any potential buyer.
Specially if the car is bad the seller will
know but the buyer will not know.
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..Asymmetric Information
(Used Car Market)
It is frequently argued that the result of this
asymmetry will be a used car market consisting
primarily of cars that are bad.
As buyer will not be able to distinguish a bad
from a good used car and therefore will not want
to pay the price that a seller offering a good car
is willing to accept.
Therefore, buyers will offer a price somewhere
in between what a good car is worth and what a
bad car is worth.
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Adverse Selection
When the information characteristics of a
transaction are such that undesirable
products, services or customers are
attracted to it.
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Moral Hazard
It is an incentives for a party to a
transaction to engage in risky or
undesirable behavior (to the detriment of
other party) because the transaction
protects the first party against loss.
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Asymmetric Information and No-
Show Problem
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Thank You
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