ECON1000 S2 2023 – GTP Brief

A.  Context and Overview

The Game Theory Presentation (GTP) is worth 30% of the final mark.

GTP is a ‘take-home’ exercise with a set of tasks to do. The GTP is based on Lecture Topics: L1 and L2. You will have twenty (21) days to complete the GTP on your own. Your GTP is to be submitted on Turnitin by official due date: 11:59pm (Perth, AWST) Friday 1st of September.

• Assessment brief available on Blackboard (Bb): 11th August 2023, 11:59pm.
• Clarifications of and indirect guidance on GTP in L2(a) and L2(b) tutorials: Week 4 of August 14th to 18th; Week 5 of August 21st to 25th.
• ETA of marks/feedback on your GTP in Grade Centre is by Monday 25th September, 9pm.

GTP consists of two parts:

Part 1 is on the first issue, worth 15 marks

Part 2 is on the second issue, worth 15 marks

This game theory presentation (GTP) in S2 2023 relates to two separate issues. Your objective is to apply game theory to these issues:

The first issue relates to the price-setting power of firms in a unique time in history, post- pandemic amidst an outbreak of high inflation. Firms have plans about the future, and pricing strategies are part of the plan, having taken into account a number of relevant factors. What is happening to my expenses/costs of late? What price should we be charging our customers in light of changing economic conditions? What are other firms doing? Powerful firms are the administrators and determine the price of the good or service in their own strategic interests. In this game theory task, you will need to evaluate the pricing strategies of major competitors and profit-taking behaviours.

The second issue relates in part to SDG8, a ‘decent work for all’. All of us want to receive an adequate compensation for the work we do. Writing is one such occupation. The entertainment environment is changing due to the takeover of streaming and other technological forces at play. Writers (especially) in Hollywood since May 2023 have been on strike over pay and working conditions, and as such TV shows and major films are likely to be impacted by the writers’ strike. Negotiations leading up to and during the strike have been intense. A strike over pay or working conditions can be considered an example of an ‘ultimatum game’—and it is the task set ahead of you to see this recent strike through a game theory lens.

When ready to submit, ONLY include answers and prepare your document as following: Full Name, Student ID and Tutor’s name as a title in the Word document (or PDF) to Turnitin by the due date (see Assessments tab on Bb).

Note, the word count is a suggested maximum. The main thing is that you specifically answer the tasks and have sufficient explanations, and refer to key sentences and ideas from various articles where relevant to support your analysis.

For more information, see PDF on Bb: ‘Marking Guidance and FAQs for GTP S2 2023’.

B.  Assessment Tasks

Part 1 – 15 Marks

Your game theory tasks for Part 1 are as follows:

To give you relevant context to setup this particular game, read the following (freely-available) key news articles:

You are to construct a relevant payoff matrix (in numbers only) based on the key news articles. To help you construct the payoff matrix, here are the key parameters and assumptions:

• This is a coordination game played between major competitors with market power in the largest economy, around Q3_2021 to Q3_2022. There are two players – ‘Player 1’ is ‘firm 1’ (e.g. PepsiCo), and ‘Player 2’ is ‘other firms’ (e.g. Coca-Cola, Red Bull etc.).
  • There are two strategies – ‘high price’ (HP) or ‘low price’ (LP).
    • Each strategy has an associated payoff.
    • The number for the payoff symbolises profit margins.
    • Players act rationally.
  • Competitors are in an inflationary environment, where consumer demand is strong.

Think of this as a simultaneously played game: this is a game played once and is repeated more than once, yet the rules, players, and payoffs are the same each time.

In this game, you will need to work out what the associated numerical (hypothetical) payoffs are. Explain in words each quadrant and any specific outcome you come across.

[800 ± 200 or so words should be sufficient]

Part 2 – 15 Marks

Your game theory tasks for Part 2 are as follows:

To give you some relevant knowledge and guidance for this task, read the following (freely- available) articles:

You are to construct a relevant game tree for the 2023 Writers Guild of America strike based on the ‘ultimatum game’. You will need to identify the two players, and make explicit your assumptions, with the following instructions in mind:

• Specify who is ‘Player 1’ (the Proposer) and who is ‘Player 2’ (the Responder) and represent the reality of the current situation between these two parties in a game tree, including an (in theory) fair resolution.
  • Think of this as a sequentially played game with multiple (three) rounds over time.
    • Each strategy has an associated payoff.
    • In this game, you will need to work out what the associated numerical (hypothetical) payoffs are. Use payoff integer values of 0 to 10.
    • Explain in words the game and each specific outcome you come across.
  • In your analysis, discuss the role of power, preferences and social norms amongst the players and how this affects the allocation.

[800 ± 200 or so words should be sufficient]

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