Economics of pricing and decision making. (Seminar 1)

Август 1, 2022

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Economics of pricing and decision making. (Seminar 1)

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2. The guessing game Each of you have to declare a number between 0 and 100. The
3. `
4. The guessing game Discussion Bounded rationality People do not naturally use deep levels of strategic thinking.
5. The guessing game Importance of repetition When the game is repeated, the average guess eventually goes
6. Q1 V W X Y Z A 9,5 8,7 5,6 3,6 9,2 B 2,5 7,6 3,5
7. Q1 V W X Y Z A 9,5 8,7 5,6 3,6 9,2 B 2,5 7,6 3,5
8. Player 1: 2q+4(1-q)=4q+3(1-q) Implies q=1/3 Player 2: 2p+5(1-p)=3 implies p=2/3 Q2
9. Monopoly: Perfect competition: P=100-1/2Q=20, thus Q=160 and zero profit. Q3
10. Cournot: q1=q2=53.3 P=46.6 Π1=Π2=1422
11. Cournot with unequal costs: q1=66.6; q2=46.6 P=44.1
12. Stackelberg: q1=80; q2=40 P=40 Π1=1600; Π2=800
13. Q4 Table:
14. Q5 entrant incumbent entrant entrant
15. Mixed strategies Entrant: -1p+1-p=2p, p=1/4 Incumbent: 7q+5(1-q)=6q+8(1-q), q=3/4 Entrant: π=0.5 Incumbent: π =6.5
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Слайд 2

The guessing game
Each of you have to declare a number between

0 and 100.
The winner is the person whose number is the closest to 2/3 of the average of all guesses.
What is your guess?

Слайд 3

`

Слайд 4

The guessing game Discussion
Bounded rationality
People do not naturally use deep levels

of strategic thinking. They just think 2-3 steps ahead.
Players may be fully rational, however if a player believes that all other players will say a number N>0, that player will declare N*2/3>0.
If all players believe that the average guess will be high, this becomes a self-fulfilling prophecy.

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The guessing game Importance of repetition
When the game is repeated, the

average guess eventually goes down to 0.

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Q1 V W X Y Z A 9,5 8,7 5,6 3,6 9,2 B 2,5 7,6 3,5 8,5 0,8 C 7,3 1,4 5,2 4,1 9,7 D 5,0 1,6 8,9 0,0 0,9 E 4,4 3,8 9,6 2,9 1,2

Слайд 7

Q1 V W X Y Z A 9,5 8,7 5,6 3,6 9,2 B 2,5 7,6 3,5 8,5 0,8 C 7,3 1,4 5,2 4,1 9,7 D 5,0 1,6 8,9 0,0 0,9 E 4,4 3,8 9,6 2,9 1,2

Слайд 8

Player 1:
2q+4(1-q)=4q+3(1-q)
Implies q=1/3
Player 2:
2p+5(1-p)=3 implies p=2/3
Q2

Слайд 9

Monopoly:
Perfect competition:
P=100-1/2Q=20, thus Q=160 and zero profit.
Q3

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Cournot:
q1=q2=53.3
P=46.6
Π1=Π2=1422

Слайд 11

Cournot with unequal costs:
q1=66.6; q2=46.6
P=44.1

Слайд 12

Stackelberg:
q1=80; q2=40
P=40
Π1=1600; Π2=800

Слайд 13

Q4
Table:

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Q5
entrant
incumbent
entrant
entrant

Слайд 15

Mixed strategies
Entrant: -1p+1-p=2p, p=1/4
Incumbent: 7q+5(1-q)=6q+8(1-q), q=3/4
Entrant: π=0.5
Incumbent: π =6.5