{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Topic13_Game Theory

American if united can chose first leader then the

Info iconThis preview shows pages 15–22. Sign up to view the full content.

View Full Document Right Arrow Icon
American If United can chose first (leader), then the Nash equilibrium changes to (American, United) = (48, 64) and United will make more $64. Thus clearly the leader has an advantage in a sequential game. Thus when a game with multiple Nash equilibrium in normal form (simultaneous game) is played sequentially, we have unique Nash equilibrium. This Nash equilibrium changes depending on who is the leader.
Background image of page 15

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

View Full Document Right Arrow Icon
16 Sequential Games: United Vs. American However, if both the players have dominant strategies in simultaneous game, then playing the game sequentially would not change the Nash equilibrium irrespective of who is the leader. Consider a Prisoner’s Dilemma game. If this game is played sequentially, the Nash equilibrium does not change irrespective of who moves first.
Background image of page 16
17 Sequential Game No Ad Ad No Ad Ad Firm B 2, 2 0, 3 1, 1 3, 0 What is the Nash equilibrium of this game if played sequentially, instead of simultaneously?
Background image of page 17

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

View Full Document Right Arrow Icon
18 Sequential Games Firm B Firm B Firm A NO AD NO AD NO AD 2, 2 0, 3 1, 1 3, 0 A, B Will the Nash equilibrium change if Firm B (not A) is the leader? NO.
Background image of page 18
19 Credible Threats In the simultaneous game, why would not a firm threaten to produce more and force the rival to produce less? If Firm A produces leader’s output (more) but Firm B produces Cournot output, then Firm A would make less profits than had it also produced Cournot output. Thus such threats are not credible. For it to be credible it must be rational.
Background image of page 19

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

View Full Document Right Arrow Icon
20 Credible Threats A player can take some action to gain advantage in a market place (for example to deter entry or raise price). Such action that gives a player an advantage must be credible, however. It can be credible only if the player takes such action by constraining its own behavior (e.g., investment in a new plant). In this case the rival can believe that the firm’s strategy is rational.
Background image of page 20
21 Entry Deterrence An incumbent gas station (at a highway exit) can pay $b to the landlord to have exclusive right to be the only gas station. In this case it can monopolize the market and earn 10 – b, where monopoly profits = 10. If it does not pay $b, the potential entrant can
Background image of page 21

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

View Full Document Right Arrow Icon
Image of page 22
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page15 / 28

American If United can chose first leader then the Nash...

This preview shows document pages 15 - 22. Sign up to view the full document.

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