ECON 100B Lecture Notes - Lecture 10: Repeated Game, The Incredibles, Simultaneous Game
16 May 2018
School
Department
Course
Professor
Econ 100B Lecture 10 - May 15, 2018
Repeated games and cartels
Repeated games
●Disney is ready to release “the Incredibles 2” while DreamWorks is ready to release “the
Boss Baby”
●The cost of making each movie is $175 million
●Advertising cost is $75 million
●Advertising influences the choice of people who already watch animated movies
●People will watch either one
●Assumption
○Advertising will not bring new audience to the theater
●Advertising costs money and will affect profit
●If both advertise: they split the maker and each earns $400 million
○Profit = $400 M - (175+75) = 150 M
●If non advertise: they split the market and earn $400 M
○But profit = 400 - 175 = 225 M
●If one company advertises and other does, the revenge of the company that advertises is
$700M and the other company will only earns $100M
○Profit = 700 - 250 = 450 M
○Loss = 100 - 175 = -75M
Disney
Dreamworks
Advertise
Not Advertise
Advertise
150, 150
450, -75
Not Advertise
-75, 450
225, 225
● The dominant strategy is to advertise
●Unless there is a collusion or an agreement both firms are stuck with an inferior outcome:
(advertise, advertise)
●Assume that the firm are able to communicate and reach an agreement that they will not
advertise
○The firms do not have an incentive to keep the promise because they have an
incentive to deviate for a higher profit
○We assume that the decision is simultaneous and there is interaction only one time
○What if they productions houses know that they are going to en up in the same
situation again next year?
●When a simultaneous game is played repeatedly, layers’ strategies consist of actions
taken during each reputation
Document Summary
Econ 100b lecture 10 - may 15, 2018. Disney is ready to release the incredibles 2 while dreamworks is ready to release the. The cost of making each movie is million. Advertising influences the choice of people who already watch animated movies. Advertising will not bring new audience to the theater. Advertising costs money and will affect profit. If both advertise: they split the maker and each earns million. Profit = m - (175+75) = 150 m. If non advertise: they split the market and earn m. But profit = 400 - 175 = 225 m. If one company advertises and other does, the revenge of the company that advertises is. m and the other company will only earns m. Profit = 700 - 250 = 450 m. Loss = 100 - 175 = -75m. Unless there is a collusion or an agreement both firms are stuck with an inferior outcome: (advertise, advertise)
