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Game Theory - PowerPoint PPT Presentation

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Game Theory
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  1. Game Theory Game 3 Your Value to a Game

  2. Your Value to a Game • You: • Director of a commercial-free music video channel • Cable companies pay to carry you • You make a take-it-or-leave it offer • Cable Companies: • Each channel has $100K in value • Cable companies have varying capacities (k) • Select the k best (lowest) offers • Market 1: 50, Market 2: 30, Market 3: 20

  3. Your Value to a Game Your added value = the size of the pie when you are in the game minus the size of the pie when you are not

  4. Unlimited Capacity (k=50) Unlimited Capacity • What is your value to the game? • What is the total value of the game? • How much should you be paid to play?

  5. Class Results • Most requested 100 • Or 99, or 99.99 • But…some LOVE the cable company • A few requested less than 50 • One requested 8 • One requested 5

  6. Slightly Limited Capacity (k=30) Perception of Bargaining Power • What is your value to the game? • What is your perceived value? • What is the total value of the game? • How much should you be paid to play?

  7. Limited Capacity (k=20) Perception of Bargaining Power • What is your value to the game? • What is the total value of the game? • How much should you be paid to play?

  8. Payoff Summary

  9. Intuition • By reducing capacity • I lower your added value • I gain bargaining power • I get a better price per channel • I gain higher profits overall • But: • The value of the game is smaller

  10. Best Score maximum profit = 100 + 74 + 25 = 199 • Sameer 100 + 60 + 25 = 185 • Tyler G, Brandon, Josh W., David 100 + 50 + 25 = 175

  11. Others • Swinging for the fences • Benjamin 100 + 100 +100 = 100 • Playing it safe • Eric 100 + 1 + 1 = 102 • Playing it very very safe • Jewel 5+5+ 5 = 15