Game Theory

1
Game Theory

• Game 2
• 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 35, 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 (k50)

• 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 99.9
• Butsome LOVE the cable company
• Shivam asked for 40
• Ami asked for 35

6
Slightly Limited
Capacity (k35)

• 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 (k20)

• 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 Bidders

• maximum profit 100 75
  20 195
• Pasharin 100 65 18 183
• Katie 100 75 40 175
• Christina 100 75 45 175

11
And

• Very safe strategy
• LaDonna, Lauren, Sofie
• 100(99) 1 1 102
• Riskier strategies 100
• Shannon, David, Shaun, Brian, Shad, Jesse,
  Edward
• Stranger strategies
• Shivam 40 25 10 75
• Ami 35 15 15 65