List of games in Chapter 5 The Extensive Form

Using Comlabgames


Game title

 (right click on the game to download it)

Short description of the experiment

5.1: Regional competition in extensive form

There are three players, an entrant and two retailers, respectively called big monopolist and small monopolist, which currently hold regional monopolies in the localities they serve. The entrant decides which market to enter, or to stay out. In the absence of competition the big and small monopolies have present values of $20 million and $10 million respectively. If the entrant establishes itself in the large market, and the big monopolist holds a sale, the entrant loses $5 million and the profits of the big monopolist are cut in half. If the big monopolist colludes with the entrant, the newcomer makes $5 million and the big monopolist earns $15 million. In either case the profits of the small monopolist are unaffected. The payoffs to the firms when the entrant establishes itself in the small monopolist's territory are interpreted in an analogous fashion.

5.2: Recruiting in extensive form

A recruiting committee has just interviewing a pool of applicants, and found that only one of them is suitable for the job. If any of the others were hired, the firm would actually lose money, after taking into account their compensation. If they make an offer to best current applicant, the firm will gain $1 million if she accepts the offer and lose $0.5 million if she rejects the package. The compensation package itself pays $200,000 and her current salary is $150,000. An alternative to making an offer is to advertise the position again in the hope of finding a better qualified applicant willing to join the firm.

In this game, the recruiting committee moves first choosing to offer the best current applicant the job or continue searching by placing another advertisement in the professional journals. If the current applicant is offered the job, she decides whether to accept the position or not. If the best current applicant is rejected and the firm continues searching, a random variable determines whether another applicant will show up. The search process has four fifth probability of being successful, and revealing a more suitable candidate. In this case the new candidate now has the choice of accepting the position or rejecting it. If a new candidate accepts the position her compensation package would be $210,000 while her current salary is $170,000. The firm will gain $1.3 million if the candidate accepts it, and lose $0.8 million if the offer is rejected. With one fifth probability the search process is not successful and the company looses $ 0.7 million, and the second applicant is offered a compensation package of $220,000 by another firm.

5.3: Matching pennies in extensive form

In the game of matching pennies, Player 1 places a penny flat on the table with his hand covering it, simultaneously choosing whether the coin's head or tail is facing up. Then Player 2 places a penny on the table either showing a head or a tail. Finally Player 1 removes his hand. If a tail appears on one coin and a head on the other Player 2 wins both coins. Otherwise Player 1 pockets them both. There are three decision nodes, four terminal nodes, and six branches representing the choices that the two players might make. Since Player 2 must make her choice after Player 1 has made his choice, there are two nodes at which he must choose, after Player 1 has placed a head face upwards, and also after Player 1 has placed a Tail face upwards. However the rules of the game prevent Player 2 from seeing the choice of Player 1 until after he has placed his coin on the table.

5.4: Perfect information of Matching pennies in extensive form

5.5: Oil extraction in the extensive form

There are two oil producers who decide how much oil to extract for sale. Each producer chooses the quantity without knowing what the other producer has chosen. The demand for oil is described by the equation p(q) = 40 – 2q. Total cost for each producer is TC= qi. Producer 1 has a choice of selecting 4, 6, 8, or 10 barrels of oil and producer 2 has a choice of 4, 6 or 8 barrels. The profit for each choice is calculated based on the demand equation and total costs. Each producer does not know the move of the other producer but both know the payoffs for each of the possible choices. 

5.6. Market saturation in the extensive form

An example of a perfect foresight game: at the beginning of the game a potential entrant decides whether to enter a whale watching tour boat industry in an isolated vacation resort which is currently served by a single operator. There is a fixed entry cost of  $1 million for the new entrant for plant, and constant variable costs. If the new firm enters, the incumbent firm decides whether to discount its product or collude with the new entrant. The monopoly rent from this industry is $3 million. At the initial node, the first potential entrant (Entrant 1) has a choice to either enter or not enter tour boat industry. If he enters he might be facing Entrant 2 if he enters the market. Each time another competitor enters the profit is decreased by $1 million to the incumbents. The game has four potential entrants.

5.7. US vs. EU in Airbus-Boeing Talks in an extensive form

An example of a simultaneous move game: Airbus receives launch aid from the EU, which reduces its financing costs, and Boeing receives aid for its military contracts, which the Europeans argue support the company’s civilian operations.  The United States and European Union have recently hit a snag in their talks over eliminating government subsidies for the two companies.  Meanwhile, Washington and Brussels blamed each other in recent days for attempting to backtrack from previous agreements.  Each company would like the other’s government to cut subsidies while their own subsidies remain. Each player will act as either the United States or the European Union.  On a given turn a player may decide to “Eliminate Subsidies”, “Reduce Subsidies”, or “Leave Subsidies in Place”. Neither player sees the other player’s move when making a decision.

5.8: Industrial dispute in an extensive form

The following example draws from a recent dispute between an Australian coal company and the union. Company believed it would win 10% of the workforce to non-union individual contracts immediately, and then the majority of the workforce within a few weeks. The union had a choice to ignore the company's action with respect to individual contracts or to initiate a strike to achieve a collective agreement quickly and to stop gradual defections from the union. If union goes on strike the company can sign a collective agreement or continue de-unionizing. If a company selects to de-unionize than both company and the union simultaneously decides between settle the dispute and continue with strike if union and continue to de-unionize if company.    

5.9: Espionage game in an extensive form

A country is infiltrated by a spy who passes information back to his own country about the directions the country is likely to take. A country decides between assault and bomb. The spy sees the country’s decision and his possible choices are: assault and bomb. The attacked country does not observe the first country’s decision but sees the report by the spy.