Game theory can be used to analyze nonprice competition in oligopolistic markets.
- a. True
b. False
Game theory is particularly useful in analyzing multiple-move decision-making situations.
- a. True
b. False
One criticism of game theory is that, by considering only the best outcome of each strategy, it views the world in an excessively optimistic light.
- a. True
b. False
Strategic behavior refers to decisions made in the long run, but not the short run.
- a. True
b. False
Game theory is concerned with identifying optimal strategies in conflict situations.
- a. True
b. False
A table that gives the profits that will result from all possible combinations of a firm’s available strategies and its opponent’s available responses is called a payoff matrix.
- a. True
b. False
Dominant strategy refers to the behavior of the price leader in an industry with a dominant firm.
- a. True
b. False
One of the postulates of game theory is that a firm will always have a single dominant strategy.
- a. True
b. False
A Nash equilibrium results when every firm in an industry chooses a strategy that is optimal given the strategies chosen by its competitors.
- a. True
b. False
The prisoners' dilemma is a situation where each player chooses a dominant strategy but each could do better if both chose different strategies.
- a. True
b. False
The prisoners' dilemma refers to a situation in which both players cooperate in determining a strategy.
- a. True
b. False
A tit-for-tat strategy makes it possible for firms to cooperate without colluding.
- a. True
b. False
A tit-for-tat strategy cannot be successfully employed in repeated games.
- a. True
b. False
A firm that establishes a reputation for aggressive and irrational behavior may be attempting to establish a credible threat to its competitors.
- a. True
b. False
While game theory is useful in analyzing the behavior of individual oligopolists, it does not apply to the behavior of nations that are engaged in competitive behavior.
- a. True
b. False
Strategic behavior recognizes that, under oligopoly, one firm’s decision does not affect other firms.
- a. True
b. False
A defining characteristic of oligopoly is that all firms in an industry typically consider the reactions of competitors when they formulate strategy.
- a. True
b. False
Game theory is primarily concerned with the study of games like roulette and dice.
- a. True
b. False
When two children fight over a piece of cake, it is an example of a zero-sum game.
- a. True
b. False
Game theory can be used to predict the behavior of nations in conflict.
- a. True
b. False
When two movie theater chains pay for advertisements proposing that people should “go out and see a show tonight,” their expenditures are strategies in a zero-sum game where profit is the payoff.
- a. True
b. False
If the payoffs in a game are measured in terms of market share, then duopolists are engaged in a nonzero-sum game.
- a. True
b. False
A firm’s dominant strategy is superior or equivalent to any other available strategy.
- a. True
b. False
A rational firm will select a dominant strategy, if one exists.
- a. True
b. False
Game theory predicts that players will always have a dominant strategy.
- a. True
b. False
A dominant strategy equilibrium is always a Nash equilibrium.
- a. True
b. False
A Nash equilibrium is always a dominant strategy equilibrium.
- a. True
b. False
If a player’s optimal strategy depends on the behavior of rival players, then that player must have a dominant strategy.
- a. True
b. False
The prisoners' dilemma provides an explanation for price wars among oligopolists.
- a. True
b. False
The prisoners' dilemma is unable to explain the seeming inability of most commodity cartels to maintain high prices.
- a. True
b. False
Firms in a cartel “cheat” by selling more output than they are supposed to.
- a. True
b. False
A credible threat is one that is not believable.
- a. True
b. False
Reputation is a source of credible threat.
- a. True
b. False
Excess capacity is an example of a credible threat that can act as a deterrent to entry by rivals.
- a. True
b. False
Tit-for-tat is a strategy that cannot be applied in repeated games.
- a. True
b. False
Decision trees represent strategies and outcomes in the form of a branching diagram.
- a. True
b. False
The technique of backward induction involves starting at the beginning of a decision tree and working through to the end.
- a. True
b. False
Sequential games can be solved using the technique of backward induction.
- a. True
b. False
The strategy of being the first to enter a new market may result in a “first mover” advantage.
- a. True
b. False
Government industrial policies and strategies can be described using game theory.
- a. True
b. False