Question

In: Economics

GAME THEORY E-commerce platform is used for facilitating the transaction between buyers and retailers. There are...

GAME THEORY

E-commerce platform is used for facilitating the transaction between buyers and retailers. There are many platforms available in the market, such as Amazon.

i. Draw the payoff matrix of the selection of e-flatform between buyers and retailers.

Retailers
Strategy Platform 1 Platform 2
Buyers Platform 1
Platform 2

ii. Explain whether there is a dominant strategy for buyers and retailers.

Solutions

Expert Solution

1. For simplicity, let us consider that there are the same number of buyers and sellers in the game with equal preference for each platform. Hence, we will get the similar kind of payoffs. Consider the table below -

Retailers
Strategy Platform 1 Platform 2
Buyers Platform 1 (5,5) (1,1)
Platform 2 (1,1) (5,5)


2. Here, the dominant strategies are two - when both buyers and sellers choose platform 1 or when they both choose platform 2. It is understandable that an ecommerce platform will be profitable for both the customers as well as the sellers if they choose the same platform. For the customer, more sellers mean more options and price ranges to choose from and for the sellers, more customers mean more business and more sales. Hence, in this payoff matrix, the highest advantage will be in the startegies where both the buyers and the sellers choose the same platform. This can be compared to having an outcome that is the same as the Battle of the Sexes


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