Experiment 2 and 3 GT1

Setting 2 - simultaneous

• is a Competitive Game

Solving

• 5 players becomes very large to write down

  • almost a Dilemma Games, but with 5 prisoners instead of 2

• simplification: players 2-5 are expected to have the same strategies, therefore we can focus on only 2 players and their interactions

• Nash Equilibrium: 30 cents / 30 cents

  • payoff is 5/5

• with a binding contract it could be 80 cents / 80 cents

  • highest payoff with 26/26

• Best Response Dynamics

Outcome

• race to the bottom → Competition
• no cooperation, serious price cutting

Setting 3 - sequential

• strategic planning goes bottom to top
  • start with last person to choose
  • then second to last based on strategy from the last person
  • recursion

Solving

• possible strategies
  • player 1: $5^1$
  • player 2: $5^5$
  • player 3: $5^{25}$
  • player 4: $5^{125}$
  • player 5: $5^{625}$
• there are so many possibilities to play this game, that is why there are so many
• simplification needs to be done → Backward Induction
  • important for my choice:
    • lowest price set before
    • how many companies have the currently lowest price set
• only Nash Equilibrium found by Backward Induction:
  • 30 cents / payoff 5 for everyone

Outcome

• many had hopes at first to increase prices
  • did not work either
• race to the bottom even faster this time