Strategy20Handout - The Entry Game-200-100 Fight Burning...

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11/20/2008 1 The Entry Game INCUMBENT Fight (-200,-100) (CHALLENGER’s payoff, INCUMBENT’s payoff) CHALLENGER Enter Stay Out Acquiesce (0,300) (100,100) Burning Money Challenger I Don’t Invest F E A SO (100, 100) (-200, -100) (0 300) Incumbent Challenger I (0, 200) Don t Invest E F Invest A SO (100, 0) (-200, 10) (0, 300) (CHALLENGER’s payoff, INCUMBENT’s payoff) The Prisoner’s Dilemma ± The most analyzed game Clyde Barrow Cooperate Defect Bonnie Parker Cooperate 3 , 3 1 , 4 Defect 4 , 1 2, 2 ± Has many parallels in life USSR Cold War Nuclear 1 st Strike US Cold War 3 , 3 1 , 4 Nuclear 1 st Strike 4 , 1 2, 2 The Prisoner’s Dilemma ± The most analyzed game Clyde Barrow Cooperate Defect Bonnie Parker Cooperate 3 , 3 1 , 4 Defect 4 , 1 2, 2 ± Has many parallels in life ± “Solving the Prisoner’s Dilemma” means finding ways of achieving Cooperation The Prisoner’s Dilemma ± First Idea: perhaps B & C don’t just play this game once. Perhaps they play it repeatedly ± If B & C thought that one defection would destroy chances for long-term cooperation, perhaps that threat could rationally sustain cooperation ± ± B & C each think that cooperation begets
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This note was uploaded on 04/14/2010 for the course ECON 398 taught by Professor Emre during the Spring '07 term at University of Michigan.

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Strategy20Handout - The Entry Game-200-100 Fight Burning...

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