Micro13 - _ Chapter13 Dr.Safarzadeh Microeconomics Chapter13

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Microeconomics _____________ Chapter 13 Dr. Safarzadeh
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Chapter 13 Game Theory and Competitive Strategy Main Questions of The Chapter:    Why do firms tend to compete aggressively in some  markets and collude in others?  How do some firms manage to deter entry by  potential competitors?   How should firms make pricing decisions when  demand or cost conditions are changing or new  competitors are entering the market? What is a Game?    Any situation that players make  strategic decisions that takes into account each others  actions and responses ( interdependence ).
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Chapter 13 Game Theory and Competitive Strategy Some Definitions:   Payoff:    Strategic decisions results in payoff to the  players, a reward or benefit.   Strategy:    A rule or plan of action for playing the game.  Optimal Strategy:    The strategy that maximizes  expected payoff. Assumptions:    Rationality of Players;  assuming that  all players are rational, acting to maximize their  payoffs, how should I take their behavior into account  when making decisions.
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Chapter 13 Game Theory and Competitive Strategy Zero-sum Game:  The loss of one player in the gain to           other player. Non-zero-sum Game:    A certain strategy may benefit  both players. Cooperative Game:    Players can negotiate binding  contracts that allow them to plan joint strategies . Example:    Trading a good, or firms negotiating a joint product. Non-Cooperative Game:    Negotiation and enforcement                       of binding contracts are not possible. Example:    Firms independently setting their price  while taking into account the behavior of other firms. Types of Games:   
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Chapter 13 Game Theory and Competitive Strategy Equilibrium in Dominant Strategies:    When every  player has a dominant strategy, the outcome is  called  equilibrium in dominant strategies. Nash Equilibrium:    A set of strategies such that each  player is doing the best it can given the action of  the opponents . Cournot Equilibrium:    No firm has an incentive to  change its output or strategy unilaterally.  Each  firm is doing the best it can given the decisions  of its  competitors.  Cournot equilibrium is a Nash  equilibrium Dominant Strategy: Strategy that is optimal no       matter what opponent does.
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Chapter 13 Game Theory and Competitive Strategy Distinction Between Dominant and Nash Equilibrium: Dominant:    I am doing the best I can  no matter   what  you do .  You are doing the best you can  no matter what I  do. Nash:
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Micro13 - _ Chapter13 Dr.Safarzadeh Microeconomics Chapter13

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