Class 14s

Class 14s - Department of Economics LeBow College of...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Department of Economics Fall 2009 LeBow College of Business Economics 301 Drexel University Professor Stehr Class 14 Outline 1) Game Theory-- One Shot Games 2) Present Discounted Value 3) Repeated Games Game Theory It’s difficult to model the behavior of oligopoly because of the interdependence between firms (can’t take behavior of rest of market as given). Economists often use game theory to analyze oligopoly or other situations where agents’ behavior is interdependent. Game Theory— Payoffs can be either profits or utility or something else that is good. Players desire to earn the highest payoff possible. Players have some information on the payoffs of other players and may be able to guess how the other players will act. One Shot Games – game is played once and never repeated 2X2 Game Matrix Firm 2 Output low Output high Firm 1 Output low Output high 1
Background image of page 1

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

View Full DocumentRight Arrow Icon
Rows list the strategies available to firm 1. Columns list the strategies available to firm 2. Each cell lists the payoff to each firm from that combination of strategies. First number is payoff to firm on the left of the matrix, second number is the payoff to the firm on top of matrix. Both firms know their payoffs as well as those of the other firm (they both have this chart and know the other guy has this chart etc.) For example, if Firm 1 chooses “Output Low” and Firm 2 chooses “Output High”, then firm 1 will receive a payoff of 7 and firm 2 will receive a payoff of 40. Dominant strategy—
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 10/17/2011.

Page1 / 8

Class 14s - Department of Economics LeBow College of...

This preview shows document pages 1 - 3. Sign up to view the full document.

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