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

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Econ 171 - Introduction to  Game Theory Lecture 5
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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
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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.
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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.
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Cournot competition 1. Define the game.
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Cournot competition 1. Define the game. 2. Solve for BR function. For simplicity, suppose i =1 and j= 2
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Cournot competition 1. Define the game. 2. Solve for BR function. 3. Find the NE .
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Cournot competition 1. Define the game. 2. Solve for BR function. 3. Find the NE .
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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
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Bertrand competition Firms choose prices What are firm 1’s profits? a) 8 b) 4 c) 2 d) 1 e) ?
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Though profits are positive, why is solution not credible? Bertrand competition
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This note was uploaded on 11/03/2011 for the course ASAM 2 taught by Professor Staff during the Spring '10 term at UCSB.

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

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