Competitive Strategy August 1 - 7

August 4
BACKWARD INDUCTION simplification of a sequential game eliminate actions at the final node and work one's way forward choose those actions that would not maximize an individual's profit at that point and eliminate them why? because a rational player will always try to maximize their own profit -> you can rely on a rational rival never choosing these actions looking forward, looking ahead and trying to think strategically what the other firm is going to do can help make better decisions a) If firm A sets a high price, firm B is best off choosing a low price    This would generate payoffs of 3mn for firm B and 6mn for firm A  b) If firm A sets a low price, firm B's best reaction is to set a high price In this situation, firm B would receive payoffs of 8mn and firm A    would get 2mn c) Firm A knows by now: A high price generates payoffs of 6mn    and a low price generates payoffs of 2mn     Hence, firm A will choose to set a high price  d) Firm B will subsequently set a low price