lecture8 - Game Theory Mike Shor Lecture 8 "The power...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
Game Theory “The power to constrain an adversary depends upon the power to bind oneself.” - Thomas Schelling Mike Shor Lecture    8
Background image of page 1

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

View Full DocumentRight Arrow Icon
Review Credible commitments require Severe enough punishment to change behavior Irreversible and clear actions Today: Changing the game for strategic advantage Overcoming the prisoner’s dilemma Mike Shor 2
Background image of page 2
Moving Beyond                                the Prisoner’s Dilemma Why does the dilemma occur? Interaction No fear of punishment Short term or myopic play Firms: Lack of monopoly power Homogeneity in products and costs Overcapacity Incentives for profit or market share Consumers Price sensitive Price aware Low switching costs Mike Shor 3 Today
Background image of page 3

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

View Full DocumentRight Arrow Icon
Altering Firm Behavior Firms: Lack of monopoly power Be a monopolist Homogeneity in products and costs Differentiate product Lower costs Mike Shor 4 Not-so-useful advice
Background image of page 4
Altering Firm Behavior Firms: Overcapacity Reduce capacity Eliminate the urge to lower prices Incentives for profit or market share Cross-shareholding Incentives based on industry profits Mike Shor 5
Background image of page 5

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

View Full DocumentRight Arrow Icon
The Prisoner’s Dilemma Mike Shor 6 Firm 2 Low High Firm 1 Low 40 , 40 65 , 35 High 35 , 65 60 , 60 Equilibrium:  $40 K Cooperation:  $60 K
Background image of page 6
Cross-Shareholding If each firm acquires 20% of the other: Mike Shor 7 Low High 35 , 65
Background image of page 7

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

View Full DocumentRight Arrow Icon
Cross-Shareholding Mike Shor 8 Low High Firm 1 Low 40 , 40 59 , 41 High 41 , 59 60 , 60 Firm 2 Low High Firm 1 Low 40 , 40 65 , 35 High 35 , 65 60 , 60 Firm 2
Background image of page 8
Altering Consumer Incentives Consumers Price sensitive Use customers as hostages Price aware Less price information to customers Increase search costs Low switching costs Increase lock-in Mike Shor 9
Background image of page 9

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

View Full DocumentRight Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 28

lecture8 - Game Theory Mike Shor Lecture 8 "The power...

This preview shows document pages 1 - 10. Sign up to view the full document.

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