1.

Two computer firms are planning to market network systems for Office Information
Management. Each firm can develop either a fast, high-quality system (H), or a slower, low-
quality system (L). Market research indicates that the resulting profits to each firm for the
alternative strategies are:
Firm B
H L
H 30,30 50, 35
Firm A

L 40, 60 20,20

a. If both follow maximin strategies, what will be the outcome? Explain your reasoning.
b. Suppose both firms try to maximize profits , but Firm A has a head start in planning, and can
commit first. What will be the outcome? What will be the outcome if Firm B has a head
start? Explain how you get to the outcome .
c. Now, getting a head start costs money. More the money spent, greater the speed of
planning and implementing and so, greater the chances of actually getting the head start.
Given this, from the pay off matrix you are required to logically infer which one of them
would be willing to spend more to get a head start and therefore, what outcome should the
other firm be prepared for.
2. Two major networks are competing for viewer ratings in the two prime slots of 8-9pm and 9-
10pm. Each has two shows to fill this and is juggling its lineup. Each can put the ‘bigger’ of

the two shows either in the first slot or in the second slot. The combination of decisions leads to
the following rating point results:
NETWORK 2
First slot Second slot
First slot 18,18 23,20
NETWORK 1

Second Slot 4, 23 16, 16

a. Reason out the way to Nash Equilibrium/equilibria.

b. Does Network 1 have a Dominant strategy? Reason out.
c. Does Network 2 have a Dominant strategy? Reason out.
d. If each is risk averse and plays maximin, what will be the outcome? Reason out.
e. Given your answers to b) and c), would it be reasonable to assume that the maximin
outcome will not happen? Substantiate.
f. In the market for cameras, there are two firms who can produce either a high-quality camera
or a low-quality camera. They need to decide on the quality simultaneously. The pay offs
(profits) are as follows:
 Firm 2

High Low Quality

Quality

High 100, 100 200, 1600

Quality
Firm 1
Low 1800, 1200 -40, -60
Quality

a. What iss/are the Nash equilibria combinations. Reason (use arrows )your way to the
answers.

b. If both firms followed a maximin strategy, what would be the outcome? Reason ...

c. If Firm 2 wants that the equilibrium be one which is best for it, illustrate how it can achieve this.