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ajaz_204_2009_lecture_23

ajaz_204_2009_lecture_23 - University of Toronto Department...

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University of Toronto Department of Economics ECO 204 2009 2010 Sayed Ajaz Hussain Lecture 23 1 Ajaz Hussain. Department of Economics. University of Toronto (St. George)
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Today Game theory in ECO 204 Representing games in a payoff matrix Example: 2 PTCs game matrix Cartel, Cournot and Monopoly outputs Solving games Deletion of dominated strategies Nash Equilibrium Mixed strategies Nash Equilibrium Special games: multiple equilibria and Prisoner’s dilemma Breaking prisoner’s dilemma Ajaz Hussain. Department of Economics. University of Toronto (St. George) 2
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Game Theory Books Technical Introduction to Game Theory , Martin Osborne (U of T prof) Game Theory for Applied Economists , Robert Gibbons Non Technical The Logic of Life ( Dear Economist column ) Undercover Economist Freakonomics (NYT column ) Armchair Economist Competitive Solutions Thinking Strategically Ajaz Hussain. Department of Economics. University of Toronto (St. George) 3
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Game Theory Analytical tool for strategic interaction My actions depend on yours and vice versa” Auctions Auctionomics , Cellular frequency auctions , Types of auctions , Google’s “Dutch Auction” IPO Negotiations Harvard Law School Project on Negotiations Relationships & Marriage Imprisoned men “players”? , As a contract , How to get a date , More Sex is Safer Sex Poker Chris Ferguson Entry deterrence DuPont and Titanium Dioxide Sports Randomization strategies , Soccer Ajaz Hussain. Department of Economics. University of Toronto (St. George) 4
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ECO 204 Game Theory Setup Rational Players Each player has discrete, finite, set of actions Players may play actions with certainty (Pure strategy) Players may randomize actions (Mixed strategy) Simultaneous, or Sequential, or combination, moves Known payoffs Common Knowledge Ajaz Hussain. Department of Economics. University of Toronto (St. George) 5
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Representing Games: A 2 Player Game Matrix Ajaz Hussain. Department of Economics. University of Toronto (St. George) 6 Player 2 Actions (Columns) Player 1 Actions (Rows) Action 1 Action 2 .. Action N 2 Action 1 Action 2 Action N 1 We will see a real life game matrix in the HBS case Nutrasweet (A) Please bring case to class next week Payoffs will be derived from actual company figures
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Example: 2 PTCs Suppose there are two identical PTCs in data services market Market Demand Curve P = 1,466 – 4.83(q 1 + q 2 ) Cost Functions C i = TFC + 28q i , i = 1, 2 Analyze Game where each PTC can produce Cartel Output Cournot Output Monopoly Output Ajaz Hussain. Department of Economics. University of Toronto (St. George) 7
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2 Player Game Matrix: Payoffs Ajaz Hussain. Department of Economics. University of Toronto (St. George) 8 PTC # 2 Outputs (Columns) PTC # 1 Outputs (Rows) Cartel q 2 Cournot q 2 Monopoly q 2 Cartel q 1 1 Cartel , 2 Cartel 1 Cartel , 2 Cournot 1 Cartel , 2 Monop Cournot q 1 1 Cournot , 2 Cartel 1 Cournot , 2 Cournot 1 Cournot , 2 Monop Monopoly q 1 1 Monop , 2 Cartel 1 Monop , 2 Cournot 1 Monop , 2 Monop
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Example 2 PTCs Please see: Chapters 6.1 and 8.1 Dynamic Cournot Game Dynamic Cournot Game (Excel 2003) Ajaz Hussain. Department of Economics.
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