142_6 - Experiment link...

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Experiment –link: http://doodle.com/6fbh8x6pwu85ruhe "Please choose between option X or Y The 1 column indicates # people who chose X The 2nd the payoff to people who chose X the 3rd the payoff to people choosing Y #X ------- X ------- Y 0 ----------0 --------50 1 ----------5 --------55 2 ---------10--------60 3--------- 15--------65 4--------- 20--------70 10 ------ 50 ------100 20 -------100 -----150 21 ------ 105 ----- 155 N ---------5 N ---- 5 N +50" Villas-Boas-Lecture 6 EEP142 Page 0
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Villas-Boas-Lecture 6 EEP142 Page 1 Non-cooperative oligopolies & Game Theory: - A small and fixed number of firms meet (there is no entry and no repeated interactions) - Later in semester: repeated interactions - All sell identical products (homogeneous) - Later in semester: differentiated products - Each firm in an oligopoly thinks the following every time it decides its action: “Since I know my competitors will respond to my action and since I know that they know that I will respond to their response rather than be passive, how should I act in the first place? - Confused? It is easy to get confused without using Game Theory - Game theory : lets us go beyond this double guessing, formalizes the fundamental strategic aspects and allows us to get an equilibrium
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Villas-Boas-Lecture 6 EEP142 Page 2 Game theory – Game theory is the formal analysis of strategic behavior. – Informal definition: Seeing through the future. Decisions taken today may have an impact on both my own and my competitors’ future decisions. Seeing through your competitors’ eyes. Outcomes depend not only on your decisions but also on your competitors’ decisions.
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Villas-Boas-Lecture 6 EEP142 Page 3 Example: oil production by Russia and OPEC. – Russia’s oil output has surged this year by about 500,000
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142_6 - Experiment link...

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