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Strategy Choices
Player B
Row
Player A b1 b2
Minimum
Maximin
a1 4 8 4
a2 11 5 5
Column
11 8
Maximum Minimax
Mixed Strategy Example
Player B
Player A b1 b3
a1 6 -2
a2 1 3
Other Game Theory Models
Player B
b1 b2 b3
Player A
a1 8 5 7
a2 2 4 10
Problem No. 2: Assume that a two-person, zero-
sum game has a pure strategy solution. If this
game were solved using a linear programming
formulation, how would you know from the
linear programming the linear programming
solution that the game had a pure strategy
solution?
Problem No. 3: Consider the payoff table below
that shows the percentage increase in market
share for company A for each combination of
Company A and Company B strategies. Assume
that Company B implements mixed strategy by
using strategy b2 with probability 0.5 and
strategy b3 with probability 0.5. Company B
decides never to use strategy b1 . What is the
expected payoff to company A under each of its
three strategies? If company B were to always
use the stated mixed strategy probabilities,
what is optimal strategy for company A?
Company B
Increase Quantity Extend
advertising Discount Warranty
b1 b2 b3
Increase 4 3 2
advertising a1
Company A Quantity -1 4 1
Discount a2
Extend 5 -2 5
Warranty a3
The expected payoffs for Company A are as
follows:
Strategy a1 : Expected Payoff = 0.5(3) +0.5(2) = 2.5
Strategy a2 : Expected Payoff = 0.5(4) +0.5(1) = 2.5
Strategy a3 : Expected Payoff = 0.5(-2)+0.5(5) = 1.5
If Company B were to implement strategy b2 with
probability 0.50 and strategy b3 with probability
0.50, Company A can select strategy a1 or a2 to
obtain an expected payoff providing a 2.5%
increase in market share.
Problem No. 4: Two television stations compete with each other for
viewing audience. The viewing audience gains in thousands of
viewers for station A are shown in the payoff table.
Station B
Sitcom News Home
rerun program improvement
b1 b2 b3
Station A Sitcom rerun a1 10 -5 3
News program a2 8 7 6
Home 4 8 7
improvement a3
Determine the optimal strategy for each station. What is the value of
the game?
The row minimums are -5, 6, and 4. Station A prefers the maximin
strategy a2 to obtain a gain of at least 6. The column maximums are
10, 8 and 7. Station B prefers the minimax strategy b3 to limit its
maximum loss to no more than 7. However, because the maximum
of the row minimums is not equal to the minimum of the row
maximums, the game does not have a pure strategy. A mixed-
strategy solution with a value of the game between 6 and 7 exists.
The linear programming formulation and solution for Station A
follows. Max GAINA
s.t.
Station B Strategy
10PA1 + 8PA2 + 4PA3 - GAINA > 0 (Strategy b1 )
-5PA1 + 7PA2 + 8PA3 - GAINA > 0 (Strategy b2 )
3PA1 + 6PA2 + 7PA3 - GAINA > 0 (Strategy b3 )
PA1 + PA2 + PA3 = 1
PA1, PA2, PA3 > 0
The optimal strategy is for Station A to implement
strategy a2 with probability 0.6 and strategy a3
with probability 0.4. Using the absolute value of
the dual prices, we see that it is optimal for
Station B to implement strategy b1 with
probability 0.2 and strategy b3 with probability
0.8.
The expected value of the game is 6.4. This is an
expected increase of 6400 viewers for Station
A.