Ch 11 Presentation International Mgmt

8/18/2019 Ch 11 Presentation International Mgmt

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Strategic Behavior

• Decisions that take into account the

predicted reactions of rival firms

–Interdependence of outcomes

• Game Theory

– Players

– Strategies – Payoff matrix


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Strategic Behavior

• Types of Games

– ero!sum games

– "on#ero!sum games• "ash $%uili&rium

– $ach player chooses a strategy that is

optimal given the strategy of the other

player

– ' strategy is dominant if it is optimal

regardless of (hat the other player does


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'dvertising $xample )

'dvertise Don*t 'dvertise

'dvertise +,- ./ +0- )/Don*t 'dvertise +1- 0/ +.- 1/

2irm B

2irm '


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2irm B

2irm '

3hat is the optimal strategy for 2irm ' if 2irm B chooses to

advertise4


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2irm B

2irm '


advertise4

If 2irm ' chooses to advertise- the payoff is ,5 6ther(ise-

the payoff is 15 The optimal strategy is to advertise5


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2irm B

2irm '

3hat is the optimal strategy for 2irm ' if 2irm B chooses

not to advertise4


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2irm B

2irm '


not to advertise4

If 2irm ' chooses to advertise- the payoff is 05 6ther(ise-

the payoff is .5 'gain- the optimal strategy is to advertise5


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2irm B

2irm '

7egardless of (hat 2irm B decides to do- the optimal

strategy for 2irm ' is to advertise5 The dominant strategy

for 2irm ' is to advertise5


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2irm B

2irm '

3hat is the optimal strategy for 2irm B if 2irm ' chooses to

advertise4


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2irm B

2irm '


advertise4

If 2irm B chooses to advertise- the payoff is .5 6ther(ise-

the payoff is )5 The optimal strategy is to advertise5


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2irm B

2irm '

3hat is the optimal strategy for 2irm B if 2irm ' chooses

not to advertise4


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2irm B

2irm '


not to advertise4

If 2irm B chooses to advertise- the payoff is 05 6ther(ise-

the payoff is 15 'gain- the optimal strategy is to advertise5


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2irm B

2irm '

7egardless of (hat 2irm ' decides to do- the optimal

strategy for 2irm B is to advertise5 The dominant strategy

for 2irm B is to advertise5


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2irm B

2irm '

The dominant strategy for 2irm ' is to advertise and the

dominant strategy for 2irm B is to advertise5 The "ash

e%uili&rium is for &oth firms to advertise5


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'dvertise +,- ./ +0- )/Don*t 'dvertise +1- 0/ +8- 1/

2irm B

2irm '

'dvertising $xample 1


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advertise4



2irm B

2irm '


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advertise4

If 2irm ' chooses to advertise- the payoff is ,5 6ther(ise-

the payoff is 15 The optimal strategy is to advertise5



2irm B

2irm '


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not to advertise4



2irm B

2irm '


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not to advertise4

If 2irm ' chooses to advertise- the payoff is 05 6ther(ise-

the payoff is 85 In this case- the optimal strategy is not toadvertise5



2irm B

2irm '


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2irm B

2irm '


The optimal strategy for 2irm ' depends on (hich strategy

is chosen &y 2irms B5 2irm ' does not have a dominant

strategy5


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advertise4



2irm B

2irm '


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advertise4

If 2irm B chooses to advertise- the payoff is .5 6ther(ise-

the payoff is )5 The optimal strategy is to advertise5



2irm B

2irm '


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not to advertise4



2irm B

2irm '


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not to advertise4

If 2irm B chooses to advertise- the payoff is 05 6ther(ise-

the payoff is 15 'gain- the optimal strategy is to advertise5



2irm B

2irm '


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7egardless of (hat 2irm ' decides to do- the optimal

strategy for 2irm B is to advertise5 The dominant strategy

for 2irm B is to advertise5



2irm B

2irm '


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2irm B

2irm '

The dominant strategy for 2irm B is to advertise5 If 2irm B

chooses to advertise- then the optimal strategy for 2irm '

is to advertise5 The "ash e%uili&rium is for &oth firms to

advertise5


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Prisoners9 Dilemma

T(o suspects are arrested for armed ro&&ery5 They are

immediately separated5 If convicted- they (ill get a term

of ): years in prison5 ;o(ever- the evidence is not

sufficient to convict them of more than the crime ofpossessing stolen goods- (hich carries a sentence of

only ) year5

The suspects are told the follo(ing< If you confess and

your accomplice does not- you (ill go free5 If you do notconfess and your accomplice does- you (ill get ):

years in prison5 If you &oth confess- you (ill &oth get 0

years in prison5


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Prisoners9 Dilemma

=onfess Don*t =onfess

=onfess +0- 0/ +:- ):/Don*t =onfess +):- :/ +)- )/

Individual B

Individual '

Payoff >atrix +negative values/


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Prisoners9 Dilemma

=onfess Don*t =onfess

=onfess +0- 0/ +:- ):/Don*t =onfess +):- :/ +)- )/

Individual B

Individual '

Dominant Strategy

Both Individuals =onfess

+"ash $%uili&rium/


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?o( Price ;igh Price

?o( Price +1- 1/ +0- )/;igh Price +)- 0/ +.- ./

2irm B

2irm '

Prisoners9 Dilemma

'pplication< Price =ompetition


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?o( Price ;igh Price

?o( Price +1- 1/ +0- )/;igh Price +)- 0/ +.- ./

2irm B

2irm '

Prisoners9 Dilemma

'pplication< Price =ompetition

Dominant Strategy< ?o( Price


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'dvertise +1- 1/ +0- )/Don*t 'dvertise +)- 0/ +.- ./

2irm B

2irm '

Prisoners9 Dilemma

'pplication< "onprice =ompetition


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Prisoners9 Dilemma

'pplication< "onprice =ompetition

Dominant Strategy< 'dvertise


'dvertise +1- 1/ +0- )/Don*t 'dvertise +)- 0/ +.- ./

2irm B

2irm '


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=heat Don*t =heat

=heat +1- 1/ +0- )/Don*t =heat +)- 0/ +.- ./

2irm B

2irm '

Prisoners9 Dilemma

'pplication< =artel =heating


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=heat Don*t =heat

=heat +1- 1/ +0- )/Don*t =heat +)- 0/ +.- ./

2irm B

2irm '

Prisoners9 Dilemma

'pplication< =artel =heating

Dominant Strategy< =heat


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$xtensions of Game Theory

• 7epeated Games

– >any consecutive moves and

countermoves &y each player • Tit!for!Tat Strategy

– Do to your opponent (hat your

opponent has @ust done to you


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• Tit!for!Tat Strategy

– Sta&le set of players

– Small num&er of players

– $asy detection of cheating

– Sta&le demand and cost conditions

– Game repeated a large anduncertain num&er of times


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• Threat Strategies

– =redi&ility

– 7eputation

– =ommitment

– $xample< $ntry deterrence


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$ntry Deterrence

$nter Do "ot $nter

?o( Price +,- !1/ +8- :/;igh Price +A- 1/ +):- :/

2irm B

2irm '

$nter Do "ot $nter

?o( Price +,- !1/ +8- :/

;igh Price +.- 1/ +- :/

2irm B

2irm '

=redi&le $ntry Deterrence

"o =redi&le $ntry Deterrence


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$ntry Deterrence

$nter Do "ot $nter

?o( Price +,- !1/ +8- :/;igh Price +A- 1/ +):- :/

2irm B

2irm '

$nter Do "ot $nter

?o( Price +,- !1/ +8- :/

;igh Price +.- 1/ +- :/

2irm B

2irm '

=redi&le $ntry Deterrence

"o =redi&le $ntry Deterrence


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International =ompetition

Produce Don*t Product

Produce +!):- !):/ +)::- :/Don*t Produce +:- )::/ +:- :/

'ir&us

Boeing

Boeing Cersus 'ir&us Industrie


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Se%uential Games

• Se%uence of moves &y rivals

• Payoffs depend on entire se%uence

• Decision trees

– Decision nodes

– Branches +alternatives/

• Solution &y reverse induction

– 2rom final decision to first decision


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;igh!Price- ?o(!Price

Strategy Game


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Strategy Game


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Strategy Game

Solution<

Both firms

choose lo(

price5


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'ir&us and Boeing


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'ir&us and Boeing


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'ir&us and Boeing

Solution< 'ir&us &uilds

'.: and

Boeing &uildsSonic =ruiser5


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Ch 11 Presentation International Mgmt

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