Class_5(2)

# Class_5(2) - Econ171Introductionto GameTheory Lecture 5...

This preview shows pages 1–12. Sign up to view the full content.

Econ 171 - Introduction to  Game Theory Lecture 5

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

View Full Document
Today’s outline Midterm 1 tomorrow Quick examples of Cournot and Bertrand simultaneous competition More applications of Nash Equilibrium Political economy Choosing a political platform Voter turnout Public goods Reporting crime
Cournot competition Model setup and assumptions: There are 2 identical Cournot firms producing a homogeneous good. Each firm simultaneously and independently chooses quantity , so that . Market (inverse) is linear, given by . Each firm has a marginal cost of production of c = 3 and is profit maximizing.

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

View Full Document
Cournot competition 1. Define the game: players, strategy spaces, and payoff functions. 2. Solve for BR function using the payoff function. 3. Find the NE solution. Firms must best-respond to each other’s best-response.
Cournot competition 1. Define the game.

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

View Full Document
Cournot competition 1. Define the game. 2. Solve for BR function. For simplicity, suppose i =1 and j= 2
Cournot competition 1. Define the game. 2. Solve for BR function. 3. Find the NE .

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

View Full Document
Cournot competition 1. Define the game. 2. Solve for BR function. 3. Find the NE .
Bertrand competition Suppose there are 3 firms competing on price. Price competition where each firm chooses a price. Consumers purchase only from firm or firms with the lowest price. Market demand is Assume firms must supply what is demanded of them at their chosen price. Marginal cost is 1 , and

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

View Full Document
Bertrand competition Firms choose prices What are firm 1’s profits? a) 8 b) 4 c) 2 d) 1 e) ?
Though profits are positive, why is solution not credible? Bertrand competition

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 11/03/2011 for the course ASAM 2 taught by Professor Staff during the Spring '10 term at UCSB.

### Page1 / 31

Class_5(2) - Econ171Introductionto GameTheory Lecture 5...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online