Jan 11, 2011

# Jan 11, 2011 - ʼ s interest& costs& payoffs 1...

This preview shows pages 1–2. Sign up to view the full content.

Rent Seeking --> Baumol can be included --> advertising (i.e. Coke v.s. Pepsi) 13% of GDP possibly China ʼ s almost industrial revolution takes away incentive to produce new products Sequential Games Should Charlie Brown (CB) take an investment from Fredo (F), of \$100,000 to get \$250,000 Game Theory is about context (all about the details of the current situation) First Rule of Strategy: Look ahead and reason back Example: Jake (J) S P Q Total S - CS + PS Q MC D Pro±t MR Deadweight Loss CB \$250,000 \$250,000 F \$250,000 -\$100,000 \$0 GAME TREES Node You J -\$200 -\$200 \$0 \$200 \$250,000 \$250,000 \$100 \$100 Honors Contract Abscond Keep Out Invests Enter Keep Out Keep Same Cut Price (1/2)*(100) - (1/2)*(200) = 50 - 100 = -\$50 Expected Pro±t --> If true, it would be better to Keep Out; but it ʼ s an erroneous assumption cause you haven ʼ t considered Jake

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ʼ s interest & costs & payoffs. 1 Producer Surplus Ultimatum Game: • there is a Proposer and a Responder; • assume that each person in a game will always looking for their own self-interest Bargaining Games: • (this example is depicted with Ice Cream) • Size = 1, 1/2, 0 _ _ _ 1 ___ ____2 ____ Period: Alice proposes Bob proposes a split (AP) a split (BP) Size = 1 L AP BP AP BP 1 (1) 2 (2/3) 3 (1/3) 4 (0) A = 2/3 B=1/3 A = 1/3 B = 1/3 A = 1/3 B = 0 A = 0 B = 0 When the game goes on for a and odd number of periods, usually the Frst player has the advantage, but this isn ʼ t always the case. You Keep Out Enter \$0 \$200 \$100 \$100 ( Bold Payoffs are Jake ʼ s) Jake could incur a loss to maintain a reputation as a tough monopolist, but he may also be irrational...
View Full Document

## This document was uploaded on 04/07/2011.

### Page1 / 2

Jan 11, 2011 - ʼ s interest& costs& payoffs 1...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online