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Unformatted text preview: Chapter 13: Game Theory and Competitive Strategy CHAPTER 13 GAME THEORY AND COMPETITIVE STRATEGY TEACHING NOTES Chapter 13 continues the discussion of competitive firms in the context of twoplayer games, with the first three sections covering topics introduced in Chapter 12. If you did not present Section 12.5, you should do so after discussing Sections 13.1 and 13.2. Sections 13.4 through 13.8 introduce advanced topics, as does section 13.9 on auctions, which is new to this edition. The presentation throughout the chapter focuses on the intuition behind each model or strategy. The exercises focus on relating Chapter 13 to Chapter 12 and on behavior in repeated games. Two concepts pervade this chapter: rationality and equilibrium. Assuming the players are rational means that each player maximizes his or her own payoff whether it hurts or helps other players. Rationality underlies many of the equilibria in the chapter. Underlying all these models is the definition of a Nash equilibrium, which the students will find esoteric. When presenting each model, ask whether a unique Nash equilibrium exists. If there is more than one, discuss the conditions that will favor each equilibrium. The analysis in the last five sections of the chapter is more demanding, but the examples are more detailed. Section 13.4 examines repeated games, and it will be important to discuss the role of rationality in the achievement of an equilibrium in both finite and infinitehorizon games. Example 13.2 points out conditions that lead to stability in repeated games, while Example 13.3 presents an unstable case. Sections 13.5, 13.6, and 13.7 introduce strategy in the context of sequential games. To capture the students attention, discuss the phenomenal success of WalMart in its attempt to preempt the entry of other discount stores in rural areas (see Example 13.4). First, define a strategic move; second, discuss the advantage of moving first; third, present Example 13.4; and fourth, continue with other forms of strategic behavior, including the use of new capacity and R&D to deter entry (see Examples 13.5 and 13.6). You may wish to reintroduce the case of bilateral monopoly during the discussion of strategic behavior in cooperative games. REVIEW QUESTIONS 1. What is the difference between a cooperative and a noncooperative game? Give an example of each....
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This note was uploaded on 01/03/2011 for the course COMM 290 taught by Professor Brian during the Winter '09 term at The University of British Columbia.
 Winter '09
 Brian

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