20-Game Theory (I)

20-Game Theory (I) - Agenda Course Overview Games and...

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1 Agenda • Course Overview • Games and Strategic Decisions • Offering Discounts • Coordinating Product Releases • Dominant and Dominated Strategies, and Nash Equilibrium • Second-price auction • A beauty contest •“A Beautiful Mind” • What To Take Away Microeconomics The Structure of the Course Consumers and Producers Market Interaction Today’s lecture Uncertainty Perfect competition Monopoly and Pricing strategies Competitive Strategy Auctions Information in Markets and Agency Game Theory Introduction to Markets Consumer Theory and Demand Technology and Production
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2 Agenda • Course Overview • Games and Strategic Decisions • Offering Discounts • Coordinating Product Releases • Dominant and Dominated Strategies, and Nash Equilibrium • Second-price auction • A beauty contest •“A Beautiful Mind” • What To Take Away Strategic Interaction So far we have looked at two “extreme” market structures: Perfect Competition and Monopoly. Under Perfect Competition, firms were price takers: They made output decisions without considering what other firms are doing. Under Monopoly, the monopolist does not need to take into account what other firms in the market are doing (there are none!). In many practical situations, there are only a few firms in the market. As a result, the benefit from different decisions will depend on what other firms are doing: there is strategic interdependence. How to analyze these situation? Note that each firm must take into account what they expect others to do when choosing what to do herself! What would be the likely outcomes in this case?
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3 To study these cases we need the tools and techniques of Game Theory. Let’s introduce some ideas and terminology through two examples: Offering Discounts. Coordinating Product Releases. Game Theory Agenda • Course Overview • Games and Strategic Decisions • Offering Discounts • Coordinating Product Releases • Dominant and Dominated Strategies, and Nash Equilibrium • Second-price auction • A beauty contest •“A Beautiful Mind” • What To Take Away
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4 Two firms, Acme and Betax, design webpages at zero marginal cost. In a market of 1,000, Market Research indicates that there are three types of clients: 20% are die-hard fans of Acme’s product and would choose Acme at the current price rather than switching to Betax and getting the product for free. 20% clients are die-hard fans of Betax’s product and would choose Betax at the current price rather than switching to Acme and getting the product for free. 60% of the population don’t see any difference in the products and would purchase from the lowest priced good. Both firms are currently pricing each webpage designed at $10 and splitting the
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This note was uploaded on 11/30/2010 for the course ECON 251 taught by Professor Tontz during the Fall '10 term at USC.

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20-Game Theory (I) - Agenda Course Overview Games and...

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