econ100_winter2010_lecture18_topost

econ100_winter2010_lecture18_topost - Oligopoly(Duopoly...

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Oligopoly (Duopoly) Small number of firms (or 2) producing a product (for now assume products are not differentiated) Each producer must take into account how rivals will respond to his actions (Cannot think about a single firm in isolation)
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Game Theory Game theory provides a basis for incorporating strategic behavior into decision- making Need to establish “rules of the game”— assumptions about how interactions with rivals take place
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Setup of “games” Consider 2 players, each of whom can choose between 2 or more possible STRATEGIES (or actions) Each combination of strategies will have associated PAYOFFS for each player Assume game is played one time only
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2 players reveal their strategies simultaneously No additional communication between players Summarize playoffs associated with different strategies in a game matrix
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2 by 2 game matrix Player 2 Player 1 Strategy1 Strategy 2 Strategy 1 Strategy 2 A,B C,D E,F G,H
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Interpretation of payoffs
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econ100_winter2010_lecture18_topost - Oligopoly(Duopoly...

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