As in the Product Choice One game, if both firms select the same market, both lose five million USD. This cereal market game is very similar to the previous game, but in this case the oat cereal market is worth much more than the wheat cereal market. This situation is shown in Figure 7.2.įigure 7.2 Product Choice Game Two: Cereal.
It might be that one of the two markets is more valuable than the other. This type of repeated game can be solved by one firm going first, or signaling to the other firm which product it will produce, and letting the other firm take the other market. It does not matter which firm produces wheat or oat cereal, as long as the two firms divide the two markets. In this situation, it helps both firms if they can decide which firm goes first, to signal to the other firm. However, the two firms split the two markets, with one firm producing wheat cereal and the other firm producing oat cereal, both firms earn ten million USD. If both firms select the same category, both firms lose five million USD, since they have flooded the market with too much cereal. In this game, two cereal producers (Kelloggs and General Mills) decide whether to produce and sell cereal made from wheat or oats. Sequential Game = A game in which players move in turns, responding to each others’ actions and reactions.Īn example of a sequential game is the product choice game shown in Figure 7.1.įigure 7.1 Product Choice Game One: Cereal. This allows consumers to choose a product that they know will be the same, given the repeated game nature of the decision to purchase meals at McDonalds.Ī sequential game is played in “turns,” or “rounds” like chess or checkers, where each player takes a turn. Examples include concealed carry gun permits: are you more likely to start a fight in a no-gun establishment, or one that allows concealed carry guns? Franchises such as McDonalds were established to allow consumers to get a common product and consistent quality at locations new to them. As such, the players in repeated games are likely to choose cooperative or “win-win” strategies more often than in one shot games. Strategies in a repeated game are often more complex than strategies in a one-shot game, as the players need to be concerned about the reactions and potential retaliations of other players. Many oligopolists and real-life relationships can be characterized as a repeated game. Repeated Game = A game in which actions are taken and payoffs received over and over again. Repeated games are games that are played over and over again. A game that is played only once is called a “one-shot” game.
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