Home » IIA » IIA-CIA-Part3 » An analyst for your company has identified three strategies Company X might develop and has shown the payoffs for each in the tables below.
Your company (Company Y) has decided to enter the European market with one of its products and is now considering three advertising strategies. This market currently belongs to Company X. Company X is aware that your company is entering the market and is itself considering steps to protect its market. An analyst for your company has identified three strategies Company X might develop and has shown the payoffs for each in the tables below.
The analyst has formulated this problem as a:
A. Zero-sum game.
B. Cooperative game.
C. Prisoner’s dilemma.
D. Game against nature.
Correct Answer: A
Explanation/Reference:
Explanation:
Game theory is a mathematical approach to decision making when confronted with an enemy or competitor. Games are classified according to the number of players and the algebraic sum of the payoffs. In a two-player game, if the payoff is given by the loser to the winner, the algebraic sum is zero, and the game is a zero-sum game; if it is possible for both players to profit, the game is a positive- sum game. In this situation, the sum of the payoffs for each combination of strategies is zero. For example, if X takes no action and Y chooses limited advertising, X’s payoff is -1 and Ys is 1.
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