lect3n - Sequential Games When there is a sufficient lag...

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Unformatted text preview: Sequential Games When there is a sufficient lag between strategy choices our previous assumption of simultaneous moves may not be realistic. In these settings, the assumption of sequential decision making is more realistic. A prime example of this setting is when an industry is currently monopolized. Here, a second firm must decide whether or not to enter the industry. Given this decision, the monopoly decides whether to price aggressively or not. Sequential Games The incumbents decision can be viewed as a function of the entrants decision. Specifically he observes whether or not the entrant firms does indeed enter, and then decides whether or not to price aggressively. In this setting we would have model the entrant moving first, and the incumbent moving second. We will model these types of games with a game tree. Sequential Games This is basically a decision tree except there is more than one decision maker involved. In our notation, a circle will denote a decision node , with the number inside it denoting which player is making a decision. When the game ends, payoffs to each player are denoted in rectangles....
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lect3n - Sequential Games When there is a sufficient lag...

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