Class04_02

Class04_02 - 2/04/2008 Class Notes (cover part of Chapter...

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2/04/2008 Class Notes (cover part of Chapter 12 in the textbook) Class Outline Modern approaches think of oligopoly as a game. Def. Game Theory Game theory is a tool for studying strategic behavior, which is behavior that takes into account the expected behavior of others and the mutual recognition of interdependence. A game has three elements : 1. Players and Rules (rules describe the setting of the game, the actions the players may take, and the consequences of those actions) 2. Strategies: all the possible actions of each player 3. Payoffs represented in a “payoff matrix” Def. Payoff Matrix A payoff matrix is a table that shows the payoffs for every possible action by each player for every possible action by the other player. Example: P2 P1 High Price Low Price High Price 1’s payoff 1’s payoff Low Price 1’s payoff 1’s payoff 1 2’s payoff 2’s payoff 2’s payoff 2’s payoff
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Example : “Pricing Game”
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Class04_02 - 2/04/2008 Class Notes (cover part of Chapter...

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