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14_01_lec29

# 14_01_lec29 - Cite as Chia-Hui Chen course materials for...

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Unformatted text preview: Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu), Massachusetts Institute of Technology. Downloaded on [DD Month YYYY]. 1 Collusion – Prisoners’ Dilemma 1 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 28, 2007 Lecture 29 Strategic Games Outline 1. Chap 12, 13: Collusion – Prisoners’ Dilemma 2. Chap 12, 13: Repeated Games 3. Chap 12, 13: Threat, Credibility, Commitment 4. Chap 14: Maximin Strategy 1 Collusion – Prisoners’ Dilemma Last time we talked about the prisoners’ dilemma. The conclusion is that they will betray the other. Now apply it to the cases of Cournot and Bertrand models. In the Cournot model, the demand is P = 30 − Q 1 − Q 2 . The equilibrium will be Q 1 = Q 2 = 10 , with π 1 = π 2 = 100 . However, to maximize their total profits, they should choose a total quantity Q so that d ( Q (30 − Q )) = , dQ which follows that Q = 15 . If they share profit equally, Q 1 = Q 2 = 7 . 5 , and π 1 = π 2 = 112 . 5 . Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu), Massachusetts Institute of Technology. Downloaded on [DD...
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14_01_lec29 - Cite as Chia-Hui Chen course materials for...

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