Psych184-SequentialGames

Psych184-SequentialGames - Intro to Game Theory Focus on...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
4/29/13’ 1’ Intro’to’Game’Theory:’Focus’on’ Sequen;al’Games’ Game’Theory’Terms’ Nash’equilibrium :’A’situa;on’where’no’player’ can’improve’his/her’payof’given’what’the’other’ players’are’doing.’ Subgame ’per±ect’equilibrium :’An’equilibrium’ where’a’Nash’equilibrium’is’played’in’every’stage’ o±’a’game.’ Backward’induc;on :’A’method’o±’²nding’ subgame’per±ect’ equilibria’by’²nding’the’Nash’ equilibrium’o±’the’last’game’and’working’ backwards.’
Background image of page 1

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

View Full Document Right Arrow Icon
4/29/13’ 2’ A’Computer’Chip’Manufacturer’ Incumbent’Frm’produces’3’million’computer’ chips’per’year’at’a’cost’of’$1’billion’ Average’cost’=’$333.33’ Average’price’=’$700’ Average’proFt’=’$700’-’$333.33’=’$366.67’ Total Proft = $366.67 x 3,000,000 chips = $1.1 billion One’Poten;al’Compe;tor’ A’new’Frm’is’considering’building’a’plant’that’ would’sell’compe;ng’computer’chips.’ If’this’new’Frm’builds,’the’price’will’fall’from’ $700’per’chip’to’$400’per’chip.’ Each’Frm’will’make’$200’million’proFt’each’ year.’
Background image of page 2
4/29/13’ 3’ Two’Poten;al’Compe;tors’ If’two’new’Frms’enter’the’market,’the’price’ will’fall’to’$200’per’chip.’ This’is’less’than’the’average’cost’of’producing’ each’chip’($333.33).’ Each’Frm’will’lose’$400’million’dollars’each’ year.’ Deterring’Entry’
Background image of page 3

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

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 13

Psych184-SequentialGames - Intro to Game Theory Focus on...

This preview shows document pages 1 - 4. Sign up to view the full document.

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