MNGT 311ERAU Pricing in Competition Game Making

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Nonzero-sum Games Explained

Most of the games businesses play are nonzero-sum games where the total gains vary depending on the players’ actions. In most business games the size of the pie is determined by the players’ actions so that seeking a larger share of the pie might result in reducing the total size of the pie. In a zero-sum game the total gains are constant; what one wins, the other loses. A zero-sum game is a game of pure conflict in which players’ actions affect only the allocation, not the size, of the pie.

Synopsis

A major part of any negotiation consists of identifying potential gains from trade. This involves looking for win-win situations. If the realized gains from trade are as large as is feasible, we call the transaction efficient. Efficient means that it would have been impossible to have restructured the transaction so as to make some participants better off and none worse off. It is tempting to suggest that all transactions must be efficient. Unfortunately, they are not. The individually rational pursuit of a large share of the pie often sabotages efficiency. A tension between cooperation and conflict is present in most games. Rational actions by each of the individuals can result in an outcome that no one likes.

Directions

Consider the following stylized representation of competition between two firms. The tension between conflict and cooperation is illustrated by the decisions of two firms competing to sell the same product. Cournot Ltd. and Bertrand Ltd., purveyors of mineral water, compete by choosing one of the two possible prices – high or low. Each firm’s profit depends also on the price of its rival. A firm earns the highest possible profit when it charges the low price while its rival charges the high price; moderately high profit when both firms charge the high price; moderately low profit when both charge the low price; and the lowest possible profit when it charges the high price and its rival charges the low price.

What price will each charge?

See the table below with Cournot’s profit being the first number in each pair and Bertrand’s the second:

Cournot Ltd.

Bertrand Ltd.

High Price

Low Price

High Price

(10, 10)

(1, 15)

Low Price

(15, 1)

(4,4)

Analyze the given situation from both competitor’s perspective, and present either one solution or compare several possible solutions in your written answer. Your submission should not exceed 1000 words excluding the title page, possible table of contents, references, and appendices. The submission is expected to follow an essay-style but you may, of course, include figures and tables in your paper. You are expected to link your analysis to course readings and additional research, meaning a current APA style and in-text citations must be used.

Hint

The pursuit of individual gain results in both players being worse off than they need to be. Try to place yourself in the shoes of your competitor. By the very nature of a game, players’ actions affect not only themselves but also the other players (or competitors in this case). If you don’t take into account your effects on others when choosing the competitive action, the business game often has inefficient outcomes. Gains from trade exists but the logic of the situation can mean that the maximum gains from trade are not realized.

Can the players somehow achieve legal cooperation and overcome conflict? Using contracts could solve, at least in some cases, your dilemma.

What changes if the game is played repeatedly? The game now has a history and a future. Thus the players can make their actions contingent on what their rivals did in the past. They can reward or punish rivals’ past behavior.

What will happen in terms of profits if each firm threatens the other with a price war? It can’t be in either firm’s interest to cut its price, can it? The concern for the future can generate cooperation but what are the three caveats that must be appended to the idea that cooperation can occur in the ongoing competitive relationship?

I will let you in on a little secret; a huge number of laboratory experiments have been done, putting subjects, usually undergraduate students, in a repeated competitive situation and letting them play for real money. Typically, they cooperate in the early plays of the game and then revert to non-cooperative play toward the end of the experiment.

Save and submit your assignment using a naming convention that includes your first and last name and the activity number (or description). Do not add punctuation or use special characters. Submit it by the posted due date. This is the grading rubic:

MGMT 311 6.3 Course Project Rubric

MGMT 311 6.3 Course Project Rubric

CriteriaRatings Pts

This criterion is linked to a Learning Outcome Ideas

25.0 pts (Excellent – A) Excels in responding to assignment. Interesting, demonstrates sophistication of thought. Central idea/thesis is clearly communicated, worth developing; limited enough to be manageable. Paper recognizes some complexity of its thesis: may acknowledge its contradictions, qualifications, or limits and follow out their logical implications. Understands and critically evaluates its sources, appropriately limits and defines terms.

23.0 pts (Above-Average – B) A solid paper, responding appropriately to assignment. Clearly states thesis/central idea, but may have minor lapses in development. Begins to acknowledge the complexity of central idea and the possibility of other points of view. Shows careful reading of sources, but may not evaluate them critically. Attempts to define terms, not always successfully.

21.0 pts (Average – C) Adequate, but weaker and less effective, possibly responding less well to assignment. Presents central idea in general terms, often depending on platitudes or clichés. Usually does not acknowledge other views. Shows basic comprehension of sources, perhaps with lapses in understanding. If it defines terms, often depends on dictionary definitions.

19.0 pts (Near-Failing – D) Does not have a clear central idea or does not respond appropriately to the assignment. Thesis may be too vague or obvious to be developed effectively. Paper may misunderstand sources.

17.0 pts (Failing – F) No central idea and does not address the assignment. Unmanageable thesis or the thesis is non-existent. Paper is not coherent.

25.0 pts

This criterion is linked to a Learning Outcome Organization and Coherence

20.0 pts (Excellent – A) Uses a logical structure appropriate to paper’s subject, purpose, audience, thesis, and disciplinary field. Sophisticated transitional sentences often develop one idea from the previous one or identify their logical relations. It guides the reader through the chain of reasoning or progression of ideas.

18.0 pts (Above-Average – B) Shows a logical progression of ideas and uses fairly sophisticated transitional devices; e.g., may move from least to more important idea. Some logical links may be faulty, but each paragraph clearly relates to paper’s central idea.

16.0 pts (Average – C) May list ideas or arrange them randomly rather than using any evident logical structure. May use transitions, but they are likely to be sequential (first, second, third) rather than logic-based. While each paragraph may relate to central idea, logic is not always clear. Paragraphs have topic sentences but may be overly general, and arrangement of sentences within paragraphs may lack coherence.

14.0 pts (Near-Failing – D) May have random organization, lacking internal paragraph coherence and using few or inappropriate transitions. Paragraphs may lack topic sentences or main ideas, or may be too general or too specific to be effective. Paragraphs may not all relate to paper’s thesis.

12.0 pts (Failing – F) Unorganized, not coherent, and very difficult to read. No connection to thesis. Paragraphs do not relate or connect.

20.0 pts

This criterion is linked to a Learning Outcome Support

20.0 pts (Excellent – A) Uses evidence appropriately and effectively, providing sufficient evidence and explanation to convince.

18.0 pts (Above-Average – B) Begins to offer reasons to support its points, perhaps using varied kinds of evidence. Begins to interpret the evidence and explain connections between evidence and main ideas. Its examples bear some relevance.

16.0 pts (Average – C) Often uses generalizations to support its points. May use examples, but they may be obvious or not relevant. Often depends on unsupported opinion or personal experience, or assumes that evidence speaks for itself and needs no application to the point being discussed. Often has lapses in logic.

14.0 pts (Near-Failing – D) Depends on clichés or over-generalizations for support, or offers little evidence of any kind. May be personal narrative rather than essay, or summary rather than analysis.

12.0 pts (Failing – F) No viable support or evidence.

20.0 pts

This criterion is linked to a Learning Outcome Links to Course Readings and Additional Research

20.0 pts (Excellent – A) Excellent research into the issues with clearly documented links to class (and/or outside) readings.

18.0 pts (Above-Average – B) Good research and documented links to the material read.

16.0 pts (Average – C) Limited research and documented links to any readings.

14.0 pts (Near-Failing – D) Incomplete research and links to any readings.

12.0 pts (Failing – F) Provided no references or support of analysis.

20.0 pts

This criterion is linked to a Learning Outcome Style and Mechanics

15.0 pts (Excellent – A) Chooses words for their precise meaning and uses an appropriate level of specificity. Sentence style fits audience and purpose. Sentences clearly structured and carefully focused. Almost entirely free of spelling, punctuation, and grammatical errors.

12.0 pts (Above-Average – B) Generally uses words accurately and effectively, but may be too general. Sentences generally clear, structured, and focused, though some may be awkward or ineffective. May contain a few errors, which may annoy the reader but not impede understanding.

10.0 pts (Average – C) Uses relatively vague and general words, may use some inappropriate language. Sentence’s structure generally correct, but sentences may be wordy, unfocused, repetitive, or confusing. Usually contains several mechanical errors, which may temporarily confuse the reader but not impede the overall understanding.

8.0 pts (Near-Failing – D) Tends to being vague and abstract, or very personal and specific. Usually contains several awkward or ungrammatical sentences; sentence structure is simple or monotonous. Usually contains either many mechanical errors or a few important errors that block the reader’s understanding and ability to see connections between thoughts.

6.0 pts (Failing – F) Misuse of words throughout. Awkward sentences throughout. Difficult to attach a thought process. Poorly punctuated, misspelled words, grammatically abusive.

15.0 pts

Total Points: 100.0

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