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Game Theory

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

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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 5 • One requested 0

  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 + 65 + 28 = 193 • Glenn 100 + 49 + 25 = 174 • Harry 100 + 45 + 28 = 173 • Kyle 100 + 65 + 35 = 165

  11. Others • Swinging for the fences • Xiaofeng 100 + 80 + 50 = 100 • Playing it safe • Claudia 25 + 20 + 20 = 65 • ? • Michael 100 + 29.578+ 12.249

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