ajaz_204_2009_lecture_24

ajaz_204_2009_lecture_24 - University of Toronto Department...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
University of Toronto Department of Economics ECO 204 2009 2010 Sayed Ajaz Hussain Lecture 24 1 S. Ajaz Hussain [email protected]
Background image of page 1

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

View Full DocumentRight Arrow Icon
Today ± Prisoner’s dilemma ² Cournot game revisited ² Pricing games ² Price wars ² Avoiding and Stopping Price Wars o Tit for tat strategies o Implicit communication and signaling o Changing the rules of the game S. Ajaz Hussain [email protected] 2
Background image of page 2
Last Time: Prisoner’s Dilemma S. Ajaz Hussain [email protected] 3 PTC # 2 Outputs (Columns) PTC#1 Outputs (Rows) Cartel q 2 = 74.4 Cournot q 2 = 99.2 Monopoly q 2 = 148.9 Cartel q 1 = 74.4 53.5 53.5 44.6 59.4 26.8 53.5 Cournot q 1 = 99.2 59.4 44.6 47.6 47.6 23.8 35.7 Monopoly q 1 = 148.9 53.5 26.8 35.7 23.8 0 0 Cheat Nash Coop
Background image of page 3

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

View Full DocumentRight Arrow Icon
Firm 1 Produces Cartel Output Firm 2 can Cooperate or Cheat S. Ajaz Hussain [email protected] 4 If Firm 2 Cooperates T = 0 T = 1T = 2T = 3… q 1 74.4 74.4 74.4 74.4 74.4 74.4 q 2 74.4 74.4 74.4 74.4 74.4 74.4 Profit 2 53.5 53.5 53.5 53.5 53.5 53.5 If Firm 2 Cheats T = 0 T = = = q 1 74.4 99.2 99.2 99.2 99.2 99.2 q 2 99.2 99.2 99.2 99.2 99.2 99.2 Profit 2 59.4 47.6 47.6 47.6 47.6 47.6
Background image of page 4
If Firm 2 Cooperates S. Ajaz Hussain [email protected] 5 If Firm 2 Cooperates T = 0 T = 1T = 2… q 1 74.4 74.4 74.4 q 2 74.4 74.4 74.4 FV(Profit 2 ) 53.5 53.5 53.5 PV(Profit 2 ) 53.5/(1 + r) 0 53.5/(1 + r) 1 53.5/(1 + r) 2 PV(Profit 2 ) 53.5 53.5 β 53.5 β 2 PV(Firm 2 Coop) = 53.5 + 53.5 β + 53.5 β 2 + 53.5 β 3 + … PV(Firm 2 Coop) = 53.5(1 + β + β 2 + β 3 + … ) PV(Firm 2 Coop) = 53.5/(1 ‐ β )
Background image of page 5

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

View Full DocumentRight Arrow Icon
If Firm 2 Cheats S. Ajaz Hussain [email protected] 6 If Firm 2 Cheats T = 0 T = 1T = 2… q 1 74.4 99.2 99.2 q 2 99.2 99.2 99.2 FV(Profit 2 ) 59.4 47.6 47.6 PV(Profit 2 ) 59.4/(1 + r) 0 47.6/(1 + r) 1 47.6/(1 + r) 2
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/02/2011 for the course ECO 204 taught by Professor Hussein during the Fall '08 term at University of Toronto.

Page1 / 20

ajaz_204_2009_lecture_24 - University of Toronto Department...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online