Class_9 - Econ171Introductionto GameTheory Lecture 9...

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Econ 171 – Introduction to  Game Theory Lecture 9
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Outline Today: Stackelberg example Simple bargaining models Dictator game Ultimatum game Alternating offers game Trust game (if time) Tuesday: Repeated games Wednesday: Exam 2
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Stackelberg duopoly example Sequential quantity competition Consider two firms: Firm 1 the industry ‘leader’, and Firm 2 is the ‘follower’ because it observes what Firm 1 chooses, then makes its choice. Strategy spaces: Player 1: Player 2: Linear market demand: P=28-4Q Constant marginal cost: c=4
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Stackelberg duopoly example Solving using backwards inductions : Write the payoff functions. Find the Firm 2’s strategy in the subgame. Looking ahead, Firm 1 anticipates Firm 2’s best- response strategy in the subgame- incorporate this information into Firm 1’s payoff function. Find Firm 1’s NE strategy/choice of q.
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Stackelberg duopoly example What will Firm 1’s quantity be? a) 3/2 b) 1 c) 4 d) 3 e) ?
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Stackelberg duopoly example What will Firm 2’s quantity be? a) 3/2 b) 1 c) 4 d) 3 e) ?
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Stackelberg duopoly example What will Firm 2’s quantity be? a) 3/2 b) 1 c) 4 d) 3 e) ? The SPNE will be ________
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Bargaining The standard bargaining model consists of two main stages. 1 st : Does the bargain happen? In other words, is their benefit to be gained at all by making a trade/deal/contract? Yes, as long as the total value of the deal is greater than the total default value if no deal where to happen. e.g. A trade can 'create' value or utility that did not exist
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This note was uploaded on 11/03/2011 for the course ECON 1171 taught by Professor Bof during the Spring '11 term at UCSB.

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Class_9 - Econ171Introductionto GameTheory Lecture 9...

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