Sony and Vizio must each decide which technology to utilize in building their 2015 model ultra high definition television (HDTV) sets: either Alpha technology or Beta technology. Sony has a technological advantage in using Alpha technology and Vizio has a technological advantage in using Beta technology. The payoff table below shows the profit outcomes for both firms in the various possible technology choice outcomes.
Vizio
Alpha Beta
Sony Alpha A $16, $18 B $20, $26
Beta C $19, $22 D $24, $20
Payoffs in billions of dollars of profits.
Suppose the technology decision between Alpha and Beta will be made simultaneously. Answer the following questions:
a. Sony's dominant strategy is _______________(Alpha, Beta, Neither: it has no dominant strategy).
b. Vizio's dominant strategy is _______________(Alpha, Beta, Neither: it has no dominant strategy).
c. Explain why cell D is or is not strategically stable.
d. As a simultaneous game, does this decision possess any Nash equilibrium cells? If so, which cell(s)? Explain why these cells are Nash.
e. Now suppose that Sony decides to make a strategic commitment to one of the technologies so that it can make the first move in a sequential decision game. Complete the game tree (on the answer sheet) for the sequential game in which Sony moves first, by filling in the blanks using the information in the preceding payoff table.
Use the roll-back method to find the Nash equilibrium decision path. Mark the best decisions at ALL decision nodes and then circle this decision path on the game tree above.
f. Now suppose instead Vizio decides makes a strategic commitment to one of the technologies so that it makes the first move. Complete the game tree (on the answer sheet) for the sequential game in which Vizio moves first, by filling in the blanks using the information in the payoff table.
Use the roll-back method to find the Nash equilibrium decision path. Mark the best decisions at ALL decision nodes and then circle this decision path on the game tree above.
g. Briefly give a definition of first-mover and second-mover advantage.
h. Which firm(s) possesses a FIRST-mover advantage and which a SECOND-mover advantage?