A) Let us first understand the payoff matrix. Consider row 1. It denotes that if

Question

A) Let us first understand the payoff matrix. Consider row 1. It denotes that if I bid low then my returns would be 1.5,9,6 respectively as per the bid of competitor (low, medium, High).

Now we notice that our return in case of low bid is always higher than that of what we get in case we bid medium in all the cases of any bid of B. Hence our low bid is undoubtedly superior than our med bid.

Next we see that our low bid gives us higher return in all case if we bid high except whn the competitor also bids high.

So we have only 2 options either to bid low or high. In case of low we have 66% chances of winning (when competitor bids low or medium) but if we bid high there is only 33% of sharing the contract (ehne bidder also bids high). Thus we would bid Low.

B) Now there r only 2 possibilities the competitor either sticks to his word or does not. If he does not we would be in deep losses either -3 or -1.5 and only if h sticks to his word we get 12 out of which we have to part away 25% so we actually get 8 which is still lower than what we would have got had we bid low and competitor bids medium. Hence even wif we play the gamble we do not get higher returns. Hence we would not fall for the trap and stick to our decision to bid low.

Explanation / Answer

Can someone please solve this Game Theory question for me please!

Substitute the Matrix with these numbers:
           Low       Mid      High
Low     1.5           9           6
Mid    -1.5          1.5         4.5
High    -3          -1.5        12

Two competing subcontractors are preparing bids for providing logistical support to the canal project. They have an option to bid high, low or 'somewhere in the middle' and the expected profit depends on your and the competing bid. If you bid higher you lose the cost of the proposal, if you bid lower you win the contract and if you bid the same as your competitor you will split the contract. See Table a) What should your strategy be and why? b) Your competitor approaches you and suggest that you both bid high, and whoever wins the contract could hire the other firm to do 25% of the work at the winning bid rate. You ask for the agreement in writing but your competitor states that 'My word and my handshake are as good as anything written. Discuss what your bid should be and why. Competitor's Company Mid 3N Low High Low 0.5N 2N Your Company Mid -0.5N 0.5N 1.5N High -N -.5N 4N

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