Part 5

Question 1

Tactics

Answer 1

Short-term effect that’s easy to reverse

Question 2

Commitment is only valuable when…

Answer 2

It's:
Visible
Understandable
Credible
Irreversible

Question 3

Credibility Principles

Answer 3

1) Change payoffs of the game; make it in your interest to follow through
2) Limit your ability to back out
3) Use others to help maintain commitment (peer pressure)

Question 4

Strategic Complements vs Strategic Substitutes

Answer 4

1) Aggressive behaviour leads to more aggressive behaviour of competitors (upward sloping graph)
2) Aggressive behaviour leads to less aggressive behaviour of competitors (downward sloping graph)

Question 5

Tough vs Soft Commitment

Answer 5

Tough – w/ an adverse impact on competitors of a firm

Soft - w/ beneficial impact on competitors of a firm

Question 6

Cournot & Bertand

Answer 6

Cournot - substitutes (quantity)

Bertrand – complements (price)

Question 7

Commitments result in..

Answer 7

Direct & Strategic Effects

Question 8

Real Option

Answer 8

Choice to adjust an investment decision based on future information; option to delay, expand, abandon