Answer in Microeconomics for Roy #159366
As the Disney and Warner brothers are the examples of Oligopolistic industry so they must use game theory. As given in matrix below:
Pirates of the Caribbean
Either of the company can one action movie or the other. Each value in dollars shows profits for respective movie version.
- If Warner brother wants to make the movie about the matrix and Disney about the Pirates of the Caribbean how much profit will Disney get? (1 Mark)
- If Disney wants to make Star Wars than Warner Brothers can make The Matrix or Superman, which one is the best choice? (1 Mark)
- If Disney choose Pirates of the Caribbean than which movie Warner Brothers will choose to dominate the market? (1 Mark)
- If Warner Brother chooses to make Superman, which movie version will Disney choose? (1 Mark)
- With this perfect information which movie will respective company make? (1 Mark)
1) Disney will get profit of $200.
2) If Disney wants to make Star Wars then Warner brothers will earn a profit of $100 if it makes the matrix and a profit of $500 if it makes Superman. So, best choice for Warner brothers is to make Superman.
3) If Disney wants to make Pirates of the Caribbean, then Warner brothers will earn a profit of $80 if it makes the matrix and a profit of $800 if it makes Superman. So, best choice for Warner brothers is to make Superman. Therefore, warner brothers will choose to make superman in order to dominate the market.
4) If Warner brothers chooses to make Superman, Disney will earn a profit of $50 if it chooses star wars and a profit of $300 if it chooses Pirates of the Caribbean.
Thus, Disney will choose to make pirates of the Caribbean.
5) If Warner brother chooses superman, it is optimal for Disney to choose pirates of the Caribbean. Moreover, at this strategy there is no incentive for any company to switch to other strategy and hence its a Nash-equilibrium. Thus, Warner brothers will choose superman and Disney will choose pirates of the Caribbean.