Ge Case Analysis

, Case #1: the turbine reference industry The default prediction that wed make using economic theory (or common sense) in the absence of game theory is that, in the turbine generator case, public Electric should have undercut Westinghouse because the former has lower costs. exactly we start to see why it didnt when we introduce capacity constraints into the Bertrand model. skill constraints can stem from two things: decreasing returns to scale, or demand-uncertainties that bring about expected inventory-cost risks and induce firms to produce to order and carry backlogs. The endorsement condition certainly prevails in the turbine generator case. Anti-trust regulators observed that both(prenominal) GE and Westinghouse were pricing higher than conventional economic digest predicts. So they assumed collusion and prosecuted, not just erst but several times. In fact, as Ghemawats research shows, the firms assay to collude but couldnt manage! Why? The firms were looking for a pure-strategy Bertrand Nash-equilibrium, which doesnt exist, leading instead to so-called Edgeworth cycles. This Bertrand game has only mixed-strategy NE (like the river-crossing game), just as Ghemawats data on the turbine generator case suggest. Therefore, the firms could achieve tacit, or non-cooperative collusion.

This sounds like a contradiction in terms, and thats how governments tend to see the matter. But governments are evidently wrong about this. Non-cooperative collusion can occur whenever at that place are Nash equilibria at which prices are higher than they are in competitive equilibria. Firms can find these without necessarily having to gather in smoke-filled rooms, by using signaling and screening in their games with one another. The turbine generator industry is a case where thats exactly what wed expect. (So GE and Westinghouse managers would be correct if they felt that they were subjected to unjustified healthy harassment.) The models: Let capacities be denoted by xi (i = 1,2).... If you want to pass water a full essay, order it on our website: Orderessay

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