Game Theory

What is the expected outcome of this one-time (not repeated) game?
Defend your answer.
If the game is played one time, both companies will have to lower their prices. The
payoff for both companies A and B will be $100, $100, respectively. The dominant strategy for
each player in the game is the lowering of the prices. It guarantees optimal payoffs irrespective
of what the other player does. Should Company A lower its price, then company B is better
placed lowering the price as well. If one player lowers the price without the other player
lowering the price, one player suffers. If both companies A and B want to maximize their payoffs
in a one time game, they must each lower the price.
How might your answer change if the game is repeated indefinitely?
If the game is repeated indefinitely, the companies will receive an infinite number of
payoffs. The payoffs will correspond to the infinite number of plays. The expected outcome will
be depended on the discount factor (Osborne, 2004). The expected payoffs based on the Nash
equilibria are (100, 100) and (500, 500). The discounting factor of cooperation will define the
comparison between the two payoffs. Future payoffs have to be discounted and thus considered
to be less valuable. Assuming that the discount rate is δ, then we can discount the payoffs using
the discount factor 1/(1×(1+ δ) n ) in a situation where the cooperation payoff is PC, and the payoff
for not cooperating is PNC then the player chooses to cooperate or not cooperate based on the
discounted payoffs. The decision to cooperate will be if PC1/(1×(1+ δ) n ) >PNC.
To what extent does this example illustrate why firms in some

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concentrated oligopolies exhibit cooperative or collusive behavior even though they don’t
explicitly collude?
If both firms chose not to lower their prices, the payoff would be (500,500). Should both
firms chose to lower their prices, the payoff becomes (100,100). Evidently, not lowering the
price is the best alternative for both firms. If both firms cooperate in an oligopoly, they will
choose to retain the prices and will earn a higher payoff than if both chose to lower the price.
Describe at least two benefits to companies implementing corporate social
responsibility (CSR) and shared value strategies. Include at least two examples
of companies that have adopted CSR or shared value, and discuss how they
benefited from them.
Corporate social responsibility (CSR) alludes to policies that are adopted by firms with
the intention of having a positive impact on the world. Companies pursue pro-social projects in
addition to the goal of maximizing profits. CSR offers certain advantages to firms. It ensures that
a company is more responsible to the shareholders and is more accountable to the consumers.
The company is able to build public trust by engaging in CSR (Bosch-Badia, 2017). The
company is able to gain trust from the consumers, and this translates to brand loyalty as well as
increased sales. A positive relationship between the company and the consumers is enhanced
through CSR. CSR results in increased profits. Consumers are willing to pay more for companies
that engage in CSR. Engaging in CSR is thus likely to attract more consumers. Examples of
companies that engage in CSR are Rolex, Addidas and Cannon. Addidas has increased its brand
loyalty by engaging in CSR. It has also increased its customer base (Bosch-Badia, 2017).

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References

Osborne, M. J. (2004). An introduction to game theory (Vol. 3, No. 3). New York: Oxford
university press.
Bosch-Badia, M. T., Montllor-Serrats, J., & Tarrazon-Rodon, M. A. (2017). Efficiency and
sustainability of CSR projects. Sustainability, 9(10), 1714.