Game Theory Assume that IBM and Dell Computer
Game Theory Assume that IBM and Dell Computer
Subject: Business / Accounting
Question
P11.5GameTheory.Assume that IBM and Dell Computer have an inventory of personal computers that they would like to sell before a new generation of faster, cheaper machines is introduced. The question facing each competitor is whether or not they should widely advertise a “close out” sale on these discontinued items or instead let excess inventory work itself off over the next few months. If both aggressively promote their products with a nationwide advertising campaign, each will earn profits of $5 million. If one advertises while the other does not, the firm that adver- tises will earn $20 million, while the one that does not advertise will earn $2 million. If neither advertises, both will earn $10 million. Assume this is a one-shot game and both firms seek to maximize profits.
.transtutors.com/qimg/56e0bad5-4966-435f-90b4-a80cb7458254.png" alt="Text box: ibm">Dell Computer
Promotion Strategy
Advertise
Do Not Advertise
Advertise
$5, $5
$20, $2
Do Not Advertise
$2, $20
$10, $10
A. What is the dominant strategy for each firm? Are these also secure strategies?
B. What is the Nash equilibrium?
C. Would collusion work in this case?
