{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

201Winter2010PartIV

# 201Winter2010PartIV - Class 14 Reaction Functions Denition...

This preview shows pages 1–4. Sign up to view the full content.

Class 14: Reaction Functions . A Reaction Function y 1 = F ( y 2 ) depicts the best-response y 1 of Player 1 to all possible actions y 2 by the Player 2. FIGURE 14.1 HERE FIGURE 14.2 HERE Remark . Reaction functions are derived from optimization behavior. 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Class 15: Nash Equilibrium with Continuous Choice simultaneous-move games with two players. Let y 1 denote the action of player 1 and y 2 denote the action of player 2. Let y 1 = F ( y 2 ) denote the reaction function of player 1 and let y 2 = G ( y 1 ) denote the reaction function of player 2. In a Nash Equilibrium the equilibrium strategies ( y 1 ;y 2 ) satisfy conditions y 1 = F ( y 2 ) and y 2 = F ( y 1 ) : Remark In the N.E. both ". Example: Oligopoly with Quantity-Competition with Simultaneous Moves q 1 : q 2 : that supply equals demand. Assume that the demand curve is D ( p ) = 1000 p; where p denotes price : 2
The inverse demand curve is therefore p = 1000 q: The inverse demand curve is derived q = 1000 p " and then solving this equation for p: q = q 1 + q 2 . unit of output) is c C ( q 1 ) = cq 1 C ( q 2 ) = cq 2 Our objective as economists ( q 1 ;q 2 ) in equilibrium and for the equilibrium price p : SOLUTION STRATEGY: STEP 1. Solve for the reaction function q 1 ( q 2 )

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 10

201Winter2010PartIV - Class 14 Reaction Functions Denition...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online