Micro2_Chapter11

Micro2_Chapter11 - References: Keat/Young, Managerial...

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Unformatted text preview: References: Keat/Young, Managerial Economics, 5/e, Pearson Education Dominique Salvatore, Managerial Economics Lecturer: Dr. Nguyen Quynh Mai 1 School of Business International University Mar 2009 References: Keat/Young, Managerial Economics, 5/e, Pearson Education Dominique Salvatore, Managerial Economics Lecturer: Dr. Nguyen Quynh Mai 2 Introduction ¡ Time: 3 hrs ¡ Readings: – Keat & Young, Chapter 11 ¡ Content: – Game Theory • Games of Particular Relevance in Economics • Game Theory and Auctions • Strategy and Game Theory – Asymmetric Information • Markets with Asymmetric Information • Market Responses to Asymmetric Information • Reputation • Standardization • Market Signaling References: Keat/Young, Managerial Economics, 5/e, Pearson Education Dominique Salvatore, Managerial Economics Lecturer: Dr. Nguyen Quynh Mai 3 Learning Objectives ¡ Define game theory, and explain how it helps better understand mutually interdependent management decisions ¡ Explain the essential dilemma faced by participants in the game called Prisoners’ Dilemma ¡ Explain the concept of a dominant strategy and its role in understanding how auctions can help improve the price for sellers, while still benefiting buyers References: Keat/Young, Managerial Economics, 5/e, Pearson Education Dominique Salvatore, Managerial Economics Lecturer: Dr. Nguyen Quynh Mai 4 Learning Objectives ¡ Explain the key problems that arise in a market where buyers and sellers do not have the same information about a product ¡ Briefly explain the concepts of “adverse selection” and “moral hazard” and why they exist in the type of market described in the previous objective ¡ Explain how “market signaling” can help market participants make better economic decisions when asymmetric information exists between buyers and sellers References: Keat/Young, Managerial Economics, 5/e, Pearson Education Dominique Salvatore, Managerial Economics Lecturer: Dr. Nguyen Quynh Mai 5 Game Theory ¡ Optimization has two shortcomings when applied to actual business situations – Assumes factors such as reaction of competitors or tastes and preferences of consumers remain constant. – Managers sometimes make decisions when other parties have more information about market conditions. ¡ Game theory is concerned with “how individuals make decisions when they are aware that their actions affect each other and when each individual takes this into account.” References: Keat/Young, Managerial Economics, 5/e, Pearson Education Dominique Salvatore, Managerial Economics Lecturer: Dr. Nguyen Quynh Mai 6 Game Theory ¡ Game Theory – Players – Strategies – Payoff matrix ¡ Types of games – Zero-Sum or Non-Zero-Sum – Cooperative or Non-Cooperative – Two-Person or N-Person ¡ All solutions involve an equilibrium condition. References: Keat/Young, Managerial Economics, 5/e, Pearson Education Dominique Salvatore, Managerial Economics Lecturer: Dr. Nguyen Quynh Mai 7 Advertising Example 1 References:...
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Micro2_Chapter11 - References: Keat/Young, Managerial...

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