Game Theory Game Theory: Cooperative game theory studies situations where players can benefit by cooperating and can make binding commitments. Learning Material: Please watch this video Scenario: Two Companies and a Joint Venture Two companies, AlphaCorp and BetaTech, are considering entering a new market. They can either compete against each other, collaborate in a joint venture, or choose to stay out. The payoff for each decision combination is represented in terms of projected profits. Data: Table: Companies' Joint Venture Payoffs (in millions) Assignment Steps: 1. Understanding the Payoffs: Analyze the payoff table to understand the implications of each decision combination for AlphaCorp and BetaTech. First Question What is the strategy combination where both companies benefit the most from cooperation? (15 points) Hint: Optimal Cooperative Outcome: This outcome provides a balanced and high payoff for both. making it the most mutually beneficial cooperation scenario. Note: To ensure this cooperative outcome, both companies could form a joint venture agreement, which specifies roles, responsibilities, profit distribution, and potential penalties for breaches. Such an agreement ensures that neither company has an incentive to deviate from the cooperative strategy, as any deviation (like deciding to compete) would be harmful to the deviating company. 1. Real-world Implications: Forming cooperative agreements in the business world can: - Advantages: Reduce competition, share risks, pool resources and expertise, and increase market power. - Challenges: Require trust, can result in unequal profit distributions if not wellnegotiated, potential for breaches, and may face regulatory scrutiny