Competitive Strategy – Coursera
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Instructor: Tobias Kretschmer
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Competitive Strategy – Coursera Quiz Answer
Week-1
Practice Quiz: Simultaneous Games
1. Which of the following statements are true?
(There can be more than 1 correct answer)
- A rational player will never play a dominated strategy.
- If each player has a dominant strategy, there will be a Nash Equilibrium in the game.
- Every game must have a dominant strategy.
- Rational players take only the payoffs into consideration when making a decision.
- Every game must have at least one Nash Equilibrium.
- Players, actions, rules and payoffs are important parts of a game (in terms of game theory).
- In a prisoner’s dilemma game the highest outcome for both players is reached.
2. Assume that two big communication companies (Secchat and Safetalk) are thinking about developing an innovative chat system for smartphones. Both companies can either develop the new technology or not. Given the dynamics and characteristics of the market, there is only room for one new chat system.
The payoffs would look like this:
How many Nash Equilibria are in this one periodic game?
3. Your business intelligence department realizes that they made a mistake in calculating the expected payoffs. Instead, they expect payoffs as shown in the game matrix below. They are not sure about what payoffs Pepsi and Cola can receive if they both do not advertise. 
What payoffs would they have to receive in order to turn this game into a prisoners’ dilemma?
- 100 < X < 200
- 50 < X < 100
- X > 20
- X < −25
4. How many dominated strategies are in this game?
5. Pepsi and Cola consider starting an advertising campaign. Both can either advertise or not advertise. If both decide to advertise each company gets a payoff of 50 mn Euro. If they don’t advertise, each gets a payoff of 70 mn Euro. If Cola advertises and Pepsi doesn’t, Cola gets a payoff of 100 mn Euro, whilst Pepsi makes losses of 50 mn Euros – and vice versa.
If you were responsible for marketing at Coca Cola, would you launch the advertising campaign?
(Consider this as a single stage game, in which all players act rationally.)
Practice Quiz: Sequential Games
1.Under which circumstances would Adam’s Pizza decide against a marketing campaign?
- x = € 1mn
- x = € 2mn
- x = € 4mn
- x = € 6mn
- x = € 7mn
2. A well-known cinema in town has offered Adam’s Pizza (A) to make advertisement on their tickets. If Adam’s Pizza declines the offer, they will approach A’s competitor Big Pizza (B) with the same offer. On the tickets, there is only space for one advertisement campaign. The actions and the corresponding payoffs are shown in the game tree below.
What is the Nash Equilibrium in this game?
- A: marketing / B: status quo
- A: no marketing / B: marketing
- A: no marketing / B: no marketing
- There is no Nash Equilibrium.
3. Which of the following statements are correct?
- Chess is an example for a sequential game.
- In a sequential game the first player can anticipate the reaction of the second player. This can be considered a first-mover advantage.
- Sequential games and simultaneous games have the same rules.
- In sequential games, threats are always credible.
- Threats always change the outcome of the game.
- Sequential games can be solved using backward induction or forward induction.
4. Let’s get back to the 1970’s: At this time, Intel is the only supplier of computer chips to IBM. At the same time, IBM is exploring the possibility of decreasing this dependency and producing computer chips on its own. In order to prevent IBM from doing so, Intel promises to decrease its price.
IBM can choose first between continuing to purchase computer chips from Intel and producing them in an own subsidiary. After that, Intel can choose whether to set a low price or a high price. If IBM opens its own subsidiary, IBM receives 40mn USD and Intel gets a payoff of 30mn USD. If IBM keeps Intel as its supplier and Intel sets a high price, then IBM gets a payoff of 10mn USD and Intel makes 90mn USD. In the case of low prices, IBM and Intel receive 50mn USD each.
Imagine you are the purchasing director of IBM. Would you open your own subsidiary producing computer chips?
5. Imagine now that Intel invests in a new production facility that increases its production capacity significantly. In order to utilize their capacity, Intel has to sell high quantities to set low prices. With charging high prices, Intel would now realize a payoff of 30mn USD (given that IBM doesn’t open an own subsidiary).
As the purchasing director of IBM, would you now open your own subsidiary for computer chips?
Quiz: Take Care of Your Competitors
1.Can a Nash Equilibrium contain dominated strategies?
2. Should Mars opt for the product placement in this game?
3. Can a game contain several Nash Equilibria?
4. You are the owner of the hair salon City Cuts.
Which price strategy would you choose given the payoffs in the matrix below? (You want to end up in a Nash Equilibrium.)
5. Simultaneous games can be solved with the help of a ______.
- matrix
- game tree
- system of equations
- verbal expression
6. How many Nash Equilibria exist in this game? Please note that we only consider equilibria in pure strategies as discussed in the course.
7.Which values can be plugged in for x so that the game turns into a
prisoners’ dilemma?
- 2 < x < 5
- 4 < x < 5
- 1 < x < 3
- 2 < x < 6
8. What is a strategy according to the working definition of this course?
- The best alternatives a player has.
- The behaviour of a firm in a certain setting.
- A set of rules a player can choose from.
- A player’s plan of actions in a game.
9. British Airways is the monopolist for domestic flights in the United Kingdom. Lufthansa wants to enter the market. British Airways threatens Lufthansa to start a price war if they enter.
Is this a credible threat ?
10. Identify the dominated strategy in the following game:
- Sensodyne – Do not advertise
- Sensodyne – Advertise
- Colgate – Advertise
- Colgate – Do not advertise
Week-2
Practice Quiz: Reasons for Cooperation
1. Through which mechanisms can cooperation between companies be achieved?
- Entry deterrence
- Bullying
- Commitment
- Repeated games
2.Have a look at the game matrix below. Could some kind of cooperation improve the outcome of this game?
3.Imagine a price setting game like in the game matrix below.
Which of the following statements is true?
- The two companies are suffering from a Prisoner’s Dilemma.
- Both companies set a low price because this is the best outcome for both of them.
- It would be best for both companies if they could commit to an outcome where one firm chooses a high price and the other firm chooses a low price.
- Both companies cannot coordinate on one Nash Equilibrium.
Practice Quiz: Finite Repetition
1. Which of the following statements is true?
- Repeated games are the only way to achieve cooperative behavior.
- In finite games it is clear from the beginning how often the game is repeated and when it ends.
- In repeated games interactions between competitors always take place in endless patterns.
- Backward induction is used to analyze repeated games with infinite repetitions.
2. If the outcome of a game is determined by the fact that in the last stage of the game there is no further threat of retaliation, this is called ___________ effect.
- equilibrium
- first- mover
- funnel
- sausage
- end-game
3. Imagine SausageKing and Hotdog-Master run hot dog stalls at the stadium of the football world championships. Both stalls exactly know that they can only sell sausages during the five weeks of the championships. After that, they have to leave the site. Mondays at 8am, they can set their prices for the coming week. The possible actions and related payoffs are as follows:
What prices will the two stalls set on the first Monday of the championships?
- SausageKing sets a Low Price and Hotdog-Master sets a High Price.
- Both set a Low Price.
- Hotdog-Master sets a Low Price and SausageKing sets a High Price.
- Both set a High Price.
4. Which of these statements are true for a game with finite repetitions?
- The players do not play a dominant strategy.
- The outcome is always the same as for a game with infinite repetitions.
- There is no endgame effect.
- In each period of the game, the equilibrium outcome is the same.
- Honor Code Agreement
Practice Quiz: Infinite Repetition
1. Which of the following factors enhance cooperation?
- The customers are heterogeneous in their preferences.
- The punishment for incorporative behavior is small.
- The number of competitors is small.
- Future payoffs are highly valued.
2. Let’s assume Saudi Arabia and Venezuela control the market for oil. Each country has enough resources and production capacity to supply the whole demand in the market. At the end of each year, the countries decide simultaneously about the prices they will charge in the following year. With probability p, the countries stay in the market and the game goes on.
If both countries charge the monopoly price the market is shared equally and the overall profit is 80mn USD. If one country charges a slightly lower price, it will serve the whole market and make profits of 60mn USD. If both countries charge a low price this will end in fierce competition and both countries will make zero profits.
The companies agreed on charging monopoly prices and punish deviation with setting a low price for all future periods.
Cooperation is achieved if…
3.Assume that there are two skis manufacturers. Every year at Christmas, they think about launching an advertising campaign. Because both companies have been in the market for quite a while and intend to stay in the market, this can be treated as a game with infinite repetitions. The possible actions of the companies and the related payoffs are as follows:
What could be a good strategy to sustain cooperation in the market?
- Flip a coin and advertise accordingly.
- Don’t advertise as long as the other manufacturer doesn’t advertise. If the other manufacturer advertises once, advertise in all future Christmas seasons.
- Choose always the action that the other company wasn’t doing in the previous period.
- Advertise at each Christmas season, no matter what the other manufacturer is doing.
4. Sweet Retreat and Flour & Faith sell cupcakes around the main university building in Los Angeles. One day, the two owners meet in secret and agree to coordinate their prices.
Their cupcake price cartel is more stable if…
- …more cupcake stores open in the area.
- …the banks charge less for credits.
- …more students buy cupcakes.
- …the price for flour and other ingredients goes down.
Practice Quiz: Commitment
1. Which of the following statements are correct?
- A most favored customer clause means that a company promises its customers that they will get refunded if another customer is charged a lower price in the future.
- Reputation building is a form of cooperative commitment.
- Self-binding commitment is a form of aggressive commitment.
- With a most favored customer clause in place, it is very costly for the companies to compete for a specific group of customers with heavy price cuts.
- Reputation building makes it more costly for companies to compete for certain customers through price cuts.
2. Enerflow and PowerCoal are manufacturers of coal-fired power stations and serve the European and Asian market. Both companies think about starting an R&D project to develop a more efficient and environmental friendly power turbine. There is not enough demand for two competing technologies of this kind in the market.
The payoff structure is as follows:
How many Nash Equilibria exist in this game?
3.Imagine now that Enerflow builds a new research and production facility specifically for this new power turbine technology. The facility cannot be used for other purposes.
What kind of strategy is Enerflow following?
- Aggressive commitment strategy
- Soft commitment strategy
- Sustainable research strategy
- Tit-for-tat strategy
4. Cooperative commitment… (check all that apply)
- … indicates the welfare of a society.
- … is about building a reputation as a unselfish player.
- … changes a simultaneous game into a sequential game.
- … often makes it difficult for companies to start a price war over a specific group of customers.
Quiz: Why Firms Work Together
1. In which type of games can an endgame effect occur?
- Games with finite repetitions
- Games with infinite repetitions
2. Reputation building is a type of a(n)…
- Most favoured customer clause
- Soft commitment
- Aggressive commitment
- Self-binding commitment
3. Imagine Airbus and Boeing both think about launching a new large-scale passenger airplane. The payoffs are stated in the matrix below.
If Boeing plays aggressive commitment what will be the outcome of the game?
- Boeing launches the 747X, Airbus does not launch the A380
- Boeing lauchnes the 747X, Airbus launches the A380
- Boeing does not launch the 747X, Airbus launches the A380
- Boeing does not launch the 747X, Airbus does not launch the A380
4.City Cuts and Toby’s Hairstyle compete on prices in one season. The possible actions and the corresponding payoffs are reported in the matrix below.
Imagine now that they both know that they will repeat the price setting every season. It is not clear from now how many season are there to come.
How will this change the outcome of the game?
- Higher payoffs for City Cuts
- Higher payoffs for both due to cooperation
- Lower payoffs for both due to deviation
- Higher payoffs for Toby’s Hairstyle
- No change
5. Imagine that Singapore Airlines and Delta Airlines are the only two airlines that serve the route New York City – Singapore.
At the beginning of each season, they decide whether to set the monopoly price (cooperate) or a lower price (deviate). The probability that there will be a next season is p.
The payoffs for each season are stated in the matrix below.
For what range of values of p do the two rational airlines cooperate?.
- Between 0 and .5
- Between .25 and .75
- Between 0.25 and 1
- Between .5 and 1
6. Imagine a prisoners’ dilemma type of game with infinite repetitions. Which of the following factors enhance cooperation in this game?
- High importance of future payoffs
- Low degree of punishment
- Great happiness of consumers
- Large number of competitors
- High number of employees
7. Imagine that AT&T and Verizon are the only two operators that offer mobile telephony services in New York.
Once every month, they decide whether to set the monopoly price (cooperate) or a lower price (deviate). The probability that they will still be in the market in the next month is p = 0.5.
The payoffs for each season are stated in the matrix below.
What is a possible value for the monopoly profits M so that the two rational companies will cooperate.
- M = 60 or greater
- M = 120 or greater
- M = 80 or greater
- M = 100 or greater
8.Imagine a prisoners’ dilemma type of game with infinite repetitions. Compare a situation with high interest rates to a situation with low interest rates.
In which of these situations is it more likely that the players will cooperate?
- Situation with high interest rates
- Situation with low interest rates
9.What might be possible effects of implementing a most favoured customer clause?
- It increases competition
- It makes future customers buy earlier
- It lowers competition
- It increases the customer’s willingness to pay
- It provides buyers with a lifetime guarantee
- It makes people collect bonus points
10. Imagine that the Summer Olympics 2016 last for two weeks. There are two burger stalls on site. They can set prices twice – once at the beginning of each week.
Their possible actions and the corresponding payoffs for each subgame are reported in the following matrix. They can either cooperate (set high prices) or deviate (set low prices).
What is the outcome of this repeated game assuming that the players act rationally?
- Cooperation in first period – No cooperation in second period
- Cooperation in first period – Cooperation in second period
- No cooperation in first period – No cooperation in second period
- No cooperation in first period – Cooperation in second period
Week-3
Practice Quiz: Complements
1.Which of these products are complements?
- DVD and DVD-Player
- Pencil and Eraser
- Smartphone and Mobile Application.
- Sugar and Honey
- Butter and Margarine
2. Tobias thinks about buying a computer to run statistical analyses. He has never had a computer before. He is more likely to buy a computer if the prices for statistical software packages…
- …stay stable
- …drop
- …increase
3. Which of these statements are correct?
- Substitute goods always have complementary effects.
- Poles and skis are classical examples of complementary products.
- The cross-price elasticity can only be calculated for products with a high degree of complementarity.
- Cars and bicycles are classical examples of complementary products.
- Two products A and B are complements if the demand for B increases when the price of A decreases and vice versa.
- Complementary products have a negative cross-price elasticity.
- The cross-price elasticity indicates how much the profit of one good increases if the demand for the other good drops.
4.Imagine consumer electronics manufacturer “Banana” reduces the price for its portable music player by 10%. In the month after the price drop, sales of Banana’s earphones increased by 8%. At the same time, Banana also sold 5% more travel charges for its portable music player.
Which of the following products have the highest degree of complementarity?
- Portable music players and earphones
- Earphones and travel chargers
- Travel chargers and portable music players
Practice Quiz: Strategies for Complements
1. Under certain circumstances, it makes sense to produce the complementary product yourself.
You should not produce it yourself if…
- …the consumers in the market have heterogeneous preferences.
- …there are many substitute products.
- …you want to internalize the externalities of the two products.
- …you expect that your potential customers will be put off by your dominant position in the market.
2. Which of the following statements are correct?
- Customers with high switching costs are more valuable to the firm.
- If customers fear a lock-in effect, they may not purchase the product.
- Bundling means that customers can mix and match their favourite products.
3. “Toastmaster”, the UK’s major manufacturer of toasters is in financial difficulties. The four big producers of toast bread announce that they support the company with an interest-free credit. What could be their motivation?
- The toaster manufacturer will remember this when the other companies need assistance and will return the favour.
- Supporting the toaster manufacturer can help decrease the price for toasters. This could increase the demand for toast bread.
- This could improve the quality and design of the toasters and subsequently also increase the sales of toast bread.
- It is always better for the toast producers to support the toaster manufacturer rather than producing toaster themselves.
4. “Niglette” is producing razors and razor blades. The company thinks about decreasing the price for its razors so that the profit margin for razors is almost zero. At the same time, they want to increase the price for razor blades.
What could be potential risk in this context?
- The consumers only buy razors.
- Consumers only buy the cheaper razor from the company.
- The consumers buy the razor blades from a different company.
- Consumers are deterred due to the increased dominant position of the company.
Practice Quiz: Complements and Cooperation
1.Which of the following statements are correct?
- A typical characteristic of strategic partnerships is joint equity ownership.
- Strategic partnerships imply that one firm takes over the other firm.
- Complementors can never be competitors.
- Competitors can also be complementors.
- If two firms are economically integrated they always engage in an intensive exchange of information.
2. Which of the following statements are correct?
- Economic integration fosters organizational integration.
- Economic integration can be achieved through frequent exchange of knowledge.
- If two firms own shares of each other they tend to be more willing to share knowledge and coordinate their behaviour.
- Companies always have an interest in sharing knowledge with each other.
- Organizational integration fosters economic integration.
- Economic integration can be achieved through cross ownership of equity.
3.In which of the following situation(s) is cooperation likely?
- Two companies produce the same product.
- Two firms produce complementary goods.
- Two companies interact very often.
- Two companies have the same number of employees.
4.If two manufacturers produce complementary products there is…
- … less need for economic integration.
- … more need for economic integration.
Quiz: Complementary Products and Strategic Partnerships
1. Imagine you are a printer manufacturer. Which of the following aspects might keep you from producing ink cartridges? (There can be more than one correct answer)
- Market for ink cartridges may be unattractive.
- Lack of competencies which are required for the production.
- Prospective customers might be put off by your dominant position.
- Better tailoring of ink cartridges to printers.
- More knowledge about customers.
- Opportunity to set higher prices.
2.If A and B are complementary products, how should the following look expression like?
3.What are typical characteristics of strategic partnerships? (There can be more than one correct answer)
- Low exchange of information
- Joint equity ownership
- Organizational integration
- Shared decision making
- High degree of competition
- Coordination mechanisms
4.Is the following statement true or false?
Products A and B are complements if A increases users’ utility from B, and vice versa.
5.Which of the following strategies can help to internalize the positive effects that complements exert on each other? (There can be more than one correct answer)
- Soft commitment
- Increasing lock-in
- Bundling
- Aggressive behaviour
- Cross subsidies
- Multiple repetitions
6. What are possible benefits of economic integration in the context of strategic partnerships? (There can be more than one correct answer)
- Alignment of interests
- Feasibility of inter-organizational coordination
- Increasing competition
- Internalization of positive externalities
- Feasibility of retaliation
7. Which aspect of a strategic partnership is highlighted in the following graphic?
- Economic Integration
- Organisational Integration
8.What’s the idea of cross subsidies?
- Product A is sold at small margins (even loss) to increase sales of complementary product B (high margins).
- Firm sells product A and complement B combined as a package.
- The more complementary products exist, the more costly it is for customers to change to another product.
9.Why does it make sense to support the supplier of the complement to the own product? (There can be more than one correct answer)
- Higher level of employee satisfaction
- Higher quality of complement
- Lower quality of the complement
- Higher sales of complement
10. Which of the following pairs of products are complementary products? (There can be more than one correct answer)
- Powdered laundry detergent and liquid laundry detergent
- Video Console and Video Game
- PC and Monitor
- Car and Fuel
- Tablet and Laptop
- Toothbrush and Toothpaste
- Tennis Racket and Squash Racket
- Audio CD and MP3 file
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