142_7 - Equilibrium. Sometimes a game can be solved simply...

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Villas-Boas-Lecture 7 EEP142 Page 0 Equilibrium. – Sometimes a game can be solved simply by finding the dominant and dominated strategies ( e.g. , the example above). – However, there are many games for which this does not work. In a Nash Equilibrium no player wants to change his/her strategy unilaterally, given what the other players have chosen. Games can have no pure strategy equilibria, or Multiple equilibria.
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Villas-Boas-Lecture 7 EEP142 Page 1 The prisoner’s dilemma. Prisoner 1 Lie Confess Lie Confess 10 -5 20 0 10 20 -5 Prisoner 2 0
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EEP142 Page 2 Cournot Oligopoly w/ 2 firms Assumptions: 2 firms choose output independently but aware of each other’s decisions (market only exists for one period) • consumers are price takers : Demand Q=1000-1000p • no entry • Homogeneous products Q=q1+q2 • firms collectively have market power (can set p> mg cost=28 cents) What strategy should firm 1 use to choose its output level? • If firm 1 believes that firm 2 will sell q2 it can determine the q1 that
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142_7 - Equilibrium. Sometimes a game can be solved simply...

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