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#1
11-03-2005, 05:44 PM
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Game Theory Problem
Here was a game theory question posed today in my economics class. Can anyone figure it out?
There are two companies, Company A and Company B. Company A wishes to acquire Company B. Company B is about to undertake an oil exploration project. -If the exploration is a complete success, Company B's shares will be worth $100 each -If the exploration is a complete failure, Company B's shares will be worth $0 each -Any value in between these is also possible, and no outcome is any more likely than any of the others -Under Company A's management, Company B's shares will be worth 50% more Here are the rules of the acquisition: Company A must make a proposal for how much money they will pay for each share of Company B Company A must make this proposal before the exploration project begins Company B will decide whether or not to accept Company A's proposal after they have learned the results of the exploration project Company B will only accept an offer greater than the value of its share price Assume Company A wants to maximize profits, how much should they offer per share? 
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#2
11-03-2005, 05:48 PM
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Re: Game Theory Problem
Sounds pretty straight forward and a few minutes worth of logic and basic math... whats the problem?
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#4
11-03-2005, 05:50 PM
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Re: Game Theory Problem
Pretty easy. Do u c y?
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#8
11-03-2005, 05:57 PM
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Re: Game Theory Problem
[ QUOTE ]
Sounds pretty straight forward and a few minutes worth of logic and basic math... whats the problem? [/ QUOTE ] Not sure, our prof said it seems simple but it's not as easy as you think. Then again, it's only a second year course, and is basically a revisit of intro to microeconomics, so maybe he figures we aren't really that smart.
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#9
11-03-2005, 06:01 PM
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Re: Game Theory Problem
[ QUOTE ]
Assume Company A wants to maximize profits, how much should they offer per share? [/ QUOTE ] I think the answer is 0.
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#10
11-03-2005, 06:27 PM
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Re: Game Theory Problem
[ QUOTE ]
[ QUOTE ] Assume Company A wants to maximize profits, how much should they offer per share? [/ QUOTE ] I think the answer is 0. [/ QUOTE ] That is what I came up with too, but that seems like it would make it a kind of pointless question. Maybe it is though.
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