13 game cartel

13 game cartel - Chapter 13 Cartels Games and Network Goods...

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Unformatted text preview: Chapter 13 Cartels, Games and Network Goods People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. Adam Smith, Wealth of Nations Book I, Chapter 10, Part II Game Theory and Collusion • People of the same trade can benefit if they can agree to restrict output and raise prices – After all, that’s how monopolists earn economic profit • Successfully colluding is harder than it may appear, however – We will use Game Theory to discover why Neoclassical Economics and Optimization • We are studying the Neoclassical model of economics • We assume that persons maximize their utility (happiness) – Firms maximize profits – Consumers maximize utility – Politicians maximize their chances of (re)election • This is straightforward if the maximizer can control the relevant variables Game Theory • What if maximizing your utility depends not only on what you do, but what other people do? • What if their objectives are in conflict with your own? Game Theory “There are two kinds of people in the world. Johnny von Neumann and the rest of us.”- Eugene Wigner, a Noble Prize-winning physicist. John von Neumann “When I am picking problems to work on, ones that stumped John von Neumann go to the bottom of the stack.”- David Friedman Game Theory in a nutshell • Games – Players • Strategies – Payoffs Games have players. Each player has a set of strategies. For every possible combination of players and strategies, a payoff for each player is defined.player is defined....
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This note was uploaded on 11/07/2010 for the course ECH 434 taught by Professor Dfs during the Spring '10 term at Binghamton.

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13 game cartel - Chapter 13 Cartels Games and Network Goods...

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