III_Oligopoly and Strategic Interaction

III_Oligopoly and Strategic Interaction - III

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I Oligopoly and Strategic Interaction III. Oligopoly and Strategic Interaction eading: hapter 9 1 Reading: Chapter 9 11 1
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III.I. Static Games and Cournot Competition Normal Form Representation of Games layers players actions (pure strategy) outcomes (strategy profile) ayoffs payoffs 2
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III.I. Static Games and Cournot Competition Normal Form Representation of Games Example: Prisoners’ Dilemma 3
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III.I. Static Games and Cournot Competition Normal Form Representation of Games Example: Prisoners’ Dilemma Wife Confess Deny onfess Husband Confess 10, 10 1, 25 Deny 25, 1 3, 3 , , 4
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III.I. Static Games and Cournot Competition Best Responses & Nash Equilibrium Best response (BR): taking other player’s rategy ven e at e strategy as given, the strategy that the player chooses to maximize his payoffs. Nash Equilibrium (NE) :t h es t r a t e g y profile when each player chooses their BR simultaneously. us E o layer n e etter ff Thus, in NE, no player can be better off by switching to some other strategy, eping l e ther layers’ rategies keeping all the other players’ strategies as specified in NE. 5
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III.I. Static Games and Cournot Competition Examples of Multiple Nash Equilibrium Example A: Pure Coordination Sally Science Library Rivera Library bay Science Library 1, 10 , 0 Harry Rivera Library 0, 01 , 1 6
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III.I. Static Games and Cournot Competition Examples of Multiple Nash Equilibrium ExampleB:Assurance Sally Science Library Rivera Library bay Science Library 1, 10 , 0 Harry Rivera Library 0, 02 , 2 7
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III.I. Static Games and Cournot Competition Examples of Multiple Nash Equilibrium ExampleC:BattleoftheSexes Sally Science Library Rivera Library bay Science Library 2, 10 , 0 Harry Rivera Library 0, 01 , 2 8
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III.I. Static Games and Cournot Competition Best Responses & Nash Equilibrium Example D: Chicken 9
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III.I. Static Games and Cournot Competition Cournot Models I. Cournot Model of Duopoly layers: firm 1 & firm 2 players: firm 1 & firm 2 strategies: firm 1: output level q1, where q1 0 firm 2: output level q2, where q2 0 common knowledge: no fixed costs marginal cost: MC1=c1, MC2=c2, c1<a, c2<a arket output: Q=q1+q2 market output: Q=q1+q2 market price: P(Q)=a Q=a q1 q2 , where a>0 10
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III.I. Static Games and Cournot Competition Cournot Models I. Cournot Model of Duopoly (con’t)
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III_Oligopoly and Strategic Interaction - III

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