4-24-09 - Microeconomics Class Notes 4/24/09 Cartel Game...

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Microeconomics – Class Notes – 4/24/09 Cartel Game theory Used to examine how firms in a cartel interact with each other 1 game: Normal Form Normal Form games Involve simultaneous moves o One player does not have an advantage by moving either first or second Sometimes it is advantageous to move first or second, but in this type of game, this is not a factor 3 elements are vital to Game Theory: 1. Players 2. Strategies there are some moves they can make 3. Payoff there is a reward or payoff a. Firms either win or lose We can use Normal Form representations to model what is going on between different firms in a cartel EXAMPLE GAME: Normal Form Make sure that all three elements are present No matter what player A does, Dominant strategy – The best strategy regardless of what the other player Player A has a dominant strategy to go up Player B: Left WEAKLY dominates right Nash equilibrium – Neither player has an incentive to unilaterally (one-way) switch strategies For this example, the Nash equilibrium is: Move to the left and up
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This note was uploaded on 06/03/2009 for the course ECON 200 taught by Professor Nonnenmacher during the Spring '09 term at Allegheny.

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4-24-09 - Microeconomics Class Notes 4/24/09 Cartel Game...

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