Consider two firms, A and B, that are deciding simultaneously which of two standards,
X and Y, to adopt.
a) Provide a game-table with pay-offs for the two firms that represents the siutation of
a standard war. That is write down the matrix and provide numbers for the pay-offs.
Then solve the game for its Nash Equilibria,
b) Do the same as in part a) for a situation that corresponds to a coordination game
where both firms prefer to have the same standard but both firms prefer standard
Y.
a) The Payoff Matrix is an expression of the First Law of Decision Science. Each row represents one action that the decision maker might or might not freely choose to perform; Each column represents a possible state of nature.
Nash equilibrium is a concept within game theory where the optimal outcome of a game is where there is no incentive to deviate from the initial strategy.
b) A coordination game is a type of simultaneous game found in game theory. It describes the situation where a player will earn a higher payoff when he selects the same course of action as another player.
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