Question 1

Which of these is an example of a trigger strategy?

Accepted Answer

Tit-for-tat is a trigger strategy used in repeated games where a player initially cooperates and then mimics the opponent's previous move. This strategy can encourage cooperation or retaliate against defection, depending on the opponent's actions.

Question 2

Repeated games tend to lead to _____ strategies.

Accepted Answer

Trigger strategies are often used in repeated games, where a player's strategy depends on the history of the opponent's actions. This can lead to cooperation in settings like the iterated prisoner's dilemma, where defection in one round can trigger defection in subsequent rounds as a form of punishment or deterrence.

Question 3

Sun's Pizza lowered its price on a one-topping pizza. Taylor's Pizzeria lowered its price on a one-topping pizza. Sun's created a secret sauce for its combination pizza. Taylor's created a secret sauce for its combination pizza. The strategy used by Taylor's Pizzeria is known as

Accepted Answer

Taylor's Pizzeria is using a tit-for-tat strategy, which involves mirroring the competitor's previous action. In this case, Taylor's responded to Sun's Pizza's price reduction and secret sauce creation with similar actions.

Question 4

An example of a cooperative game is

Accepted Answer

A cartel is an example of a cooperative game because members of a cartel work together to set prices or output levels, coordinating their actions to achieve mutual benefit, unlike in the prisoner's dilemma where individuals act in their own self-interest potentially to the detriment of the collective.

Question 5

A game in which players do not negotiate and do not work together is a _____ game.

Accepted Answer

Noncooperative games are those in which players make decisions independently and do not negotiate or collaborate with one another.

Question 6

A trigger strategy is a strategy that

Accepted Answer

A trigger strategy is a strategy in game theory where a player's future actions depend on the opponent's past decisions, often used in repeated games to enforce cooperation.

Question 7

The trembling hand trigger game

Accepted Answer

The trembling hand trigger game allows for the possibility of mistakes by an opponent before a grim trigger strategy (a strategy of non-cooperation after a defection) is employed. This makes it more forgiving than the strict grim trigger strategy, which does not allow for mistakes.

Question 8

Which of these is a type of strategy used in a repeated game?

Accepted Answer

Trigger strategies are a type of strategy used in repeated games, where a player's action depends on the past behavior of other players. If a player deviates from a cooperative strategy, the trigger strategy prescribes switching to a non-cooperative strategy as punishment.

Question 9

In the grim trigger strategy, the actions of opponents are met with

Accepted Answer

The grim trigger strategy in game theory involves responding to any defection by an opponent with permanent retaliation, essentially playing the defect strategy indefinitely as punishment.

Question 10

If a player chooses not to forgive another player who cheats on an agreement, which trigger strategy is MOST likely to be used?

Accepted Answer

The grim trigger strategy involves a player cooperating until the other player cheats or defects, after which the first player will defect for the remainder of the game. This strategy is most aligned with not forgiving another player for cheating on an agreement.

Question 11

Which statement provides the BEST example of a grim trigger rule?

Accepted Answer

The grim trigger strategy in game theory involves a player responding to a defection by another player with a permanent defection of their own. This means if one player deviates from a cooperative strategy, the other player will retaliate by forever refusing to cooperate in the future, which is best exemplified by option D.

Question 12

If Nintendo lowers the price of its product by $10, Sony responds by lowering the price of its own product by $10 and chooses not to cooperate again. This is an example of what type of game strategy?

Accepted Answer

Grim trigger is a strategy in a repeated game where a player responds to a deviation from cooperation with permanent non-cooperation. In this scenario, Sony's decision to permanently not cooperate after a single deviation by Nintendo exemplifies the grim trigger strategy.

Question 13

If Nintendo lowers the price of its product by $10, Sony waits to see whether Nintendo's price cut was a temporary mistake. This is an example of what type of game strategy?

Accepted Answer

The trembling hand trigger strategy involves a player waiting to see if an opponent's unexpected action (like a price cut) was intentional or a mistake before responding. This contrasts with immediate retaliation or assumption of strategic intent, allowing for the possibility of errors or temporary deviations in behavior.

Question 14

If Nintendo lowers the price of its product by $10, Sony responds by lowering the price of its own product by $10. The following month, Nintendo raises the price of its product by $15 and Sony responds by raising the price of its own product by $15. This is an example of what type of game strategy?

Accepted Answer

This is an example of a tit-for-tat strategy, where one player responds to the actions of another player with similar actions, in this case, price changes.

Question 15

Firms A and B are within an oligopolistic market. Firm A lowers the price for one of its goods and in retaliation, firm B decides to set a policy that will keep the price for its comparable good lower than firm A's. Based on the given information, which statement is TRUE?

Accepted Answer

Firm B's decision to set a policy that will keep its prices lower than Firm A's in retaliation is an example of a grim trigger strategy. This strategy is a form of punishment aimed at deterring Firm A from lowering its prices again, by committing to a long-term strategy of keeping prices low. This does not necessarily relate to the variable costs of either firm, nor does it indicate a trembling hand trigger response, which involves a strategy that allows for occasional deviations from the equilibrium strategy.

Question 16

(Table) Boeing and Airbus can either comply with a cartel agreement or cheat. Based on the table, where Boeing's payoff is listed first in each outcome, if Boeing cheats on the cartel agreement and Airbus complies with the agreement, Boeing's profit will be
$\begin{array}{c}
\quad \quad \quad \quad \quad \quad \quad \quad \text { Airbus }\
\begin{array}{ccc}
&& \text { Cheat } & \text { Comply } \
 \text {Boeing   } &\text { Cheat } & \$ 0, \$ 0 & \$ 3 \text { million, }-\$ 1 \text { million } \
&\text { Comply } & -\$ 1 \text { million, } \$ 3 \text { milton } & \$ 2 \text { million, } \$ 2 \text { million }
\end{array}\end{array}$

Accepted Answer

Boeing's profit is $3 million when Boeing cheats and Airbus complies, as indicated in the table.

Question 17

(Table) Boeing and Airbus can either comply with a cartel agreement or cheat. Based on the table, where Boeing's payoff is listed first in each outcome, if this game is played only once, and each firm plays rationally
$\begin{array}{c}
\quad \quad \quad \quad \quad \quad \quad \quad \text { Airbus }\
\begin{array}{ccc}
&& \text { Cheat } & \text { Comply } \
 \text {Boeing   } &\text { Cheat } & \$ 0, \$ 0 & \$ 3 \text { million, }-\$ 1 \text { million } \
&\text { Comply } & -\$ 1 \text { million, } \$ 3 \text { milton } & \$ 2 \text { million, } \$ 2 \text { million }
\end{array}\end{array}$

Accepted Answer

Rational players aim to maximize their payoff. Cheating yields a higher payoff regardless of the other's choice, making it the dominant strategy for both.

Question 18

(Table) Boeing and Airbus can either comply with a cartel agreement or cheat. Based on the table, where Boeing's payoff is listed first in each outcome, if this game is played repeatedly and both firms adopt strategies such that the cooperative equilibrium emerges
$\begin{array}{c}
\quad \quad \quad \quad \quad \quad \quad \quad \text { Airbus }\
\begin{array}{ccc}
&& \text { Cheat } & \text { Comply } \
 \text {Boeing   } &\text { Cheat } & \$ 0, \$ 0 & \$ 3 \text { million, }-\$ 1 \text { million } \
&\text { Comply } & -\$ 1 \text { million, } \$ 3 \text { milton } & \$ 2 \text { million, } \$ 2 \text { million }
\end{array}\end{array}$

Accepted Answer

In a repeated game, both Boeing and Airbus have an incentive to cooperate to achieve the cooperative equilibrium, which yields them each \$2 million, rather than risking the lower payoffs associated with cheating. This is because, over time, cooperation can be sustained through strategies like "tit-for-tat," where each firm's current action is based on the other firm's previous action, encouraging mutual compliance.

Question 19

(Table) HH Gregg and Best Buy are competing for sales for their newest high-capacity mobile device battery packs. Each firm has a pricing strategy of either a high price or a low price. Profits for each store are listed in the payoff boxes, with Best Buy's payoff listed first. Based on the table, does either store have a dominant strategy in this game?
$\begin{array}{c}
\quad \quad \quad \quad \quad \quad \quad \quad \text { HH Gregg }\
\begin{array}{ccc} 
\text { Best Buy }\
&& \text { High } & \text { Low } \
&\text { High } & 100,100 & 30,120 \
&\text { Low } & 120,30 & 50,50
\end{array}\end{array}$

Accepted Answer

The answer of (Table) HH Gregg and Best Buy are...

Question 20

(Table) HH Gregg and Best Buy are competing for sales for their newest high-capacity mobile device battery packs. Each firm has a pricing strategy of either a high price or a low price. Profits for each store are listed in the payoff boxes, with Best Buy's payoff listed first. Based on the table, the Nash equilibrium for this game is
$\begin{array}{c}
\quad \quad \quad \quad \quad \quad \quad \quad \text { HH Gregg }\
\begin{array}{ccc} 
\text { Best Buy }\
&& \text { High } & \text { Low } \
&\text { High } & 100,100 & 30,120 \
&\text { Low } & 120,30 & 50,50
\end{array}\end{array}$

Accepted Answer

The Nash equilibrium is a scenario in which neither player can improve their payoff by unilaterally changing their strategy, assuming the other player's strategy remains unchanged. In the (Low, Low) = (50, 50) scenario, neither Best Buy nor HH Gregg can increase their profit by changing their pricing strategy while the other keeps theirs the same, making it the Nash equilibrium.

Quiz 10: Monopolistic Competition, Oligopoly, and Game Theory