Game theory becomes relevant to the analysis of business decision making when there are relatively few firms playing a game. (We shall define what is meant by a 'game' below.) Where there are many competing firms, your firm is not affected in any significant way by the actions of any other single firm, and your actions have no significant impact on others. In these circumstances, it is reasonable for firms to act in ways that ignore the possible responses that others might make to their actions.

Assume Afghan Marble Exporters are considering Investing in Pakistan which is dominated by its principal rival, say Pakistan Export Market. Afghan Exporters decision to enter or not will be judged on the potential profitability of such a move. This, in turn, depends upon counter measures imposed by Pakistan Government either via Trade Barriers or Non-Trade Barriers to restrict Afghan Investors. . If Pakistan Government imposes additional trade barriers such high tariffs, then an entry by Afghan Exporters will result to a loss of $3. 4 million and a loss of $1.9 million for Pakistan Processors. If, on the other hand, Pakistan uplifts the barriers, then both Afghan and Pakistan domestic producers will be making profits of $2 million and $2 million, respectively. Finally, if Afghan Exporter does not enter the market at all, then Pakistan producers will be making monopoly profits of $4.9 million".

Required:

a) What would you do if you were the CEO of Afghan Marble Exporter Associations and Why, Explain briefly-use any practical approach or model discussed in the class to justify your response?

b) If you were a Pakistani Producer, Would you play aggressively or would you accommodate Afghan Exporters entry?

c) How Game theory Improve the Quality of business decision?

d) How important the timing of the decisions made by the two companies is for the outcome of the game? You can also develop the payoff matrix to discuss the expected outcomes for each player if the game is played once.