This document provides an overview of key concepts in game theory and oligopoly models. It discusses oligopoly market structures where a few firms account for most production. It also covers the Cournot and Bertrand models of oligopoly competition. The document explores game theory concepts such as the prisoner's dilemma, Nash equilibrium, dominant strategies, and repeated games. It examines how these concepts apply to oligopolistic pricing behaviors and the implications of threats, commitments and credibility in strategic interactions between firms.
Using Game Theory To Gain The Upper Hand During Contract Negotiations 2009Mickey Duke
An example of the creative use of "Game Theory" approach to develop a managed care strategy for a multi-hospital system in the southwest United States -- resulting in 85% increase in hospital net revenue per inpatient day over 7 years.
Using Game Theory To Gain The Upper Hand During Contract Negotiations 2009Mickey Duke
An example of the creative use of "Game Theory" approach to develop a managed care strategy for a multi-hospital system in the southwest United States -- resulting in 85% increase in hospital net revenue per inpatient day over 7 years.
Students should be able to:
Use simple game theory to illustrate the interdependence that exists in oligopolistic markets
Understanding the prisoners’ dilemma and a simple two firm/two outcome model. Students should analyse the advantages/disadvantages of being a first mover
Students will not be expected to have an understanding of the Nash Equilibrium
Brennan, Niamh [1999] Voluntary Disclosure of Profit Forecasts by Target Comp...Prof Niamh M. Brennan
This paper examines factors influencing voluntary forecast disclosure by target companies, whether good/bad news forecasts are disclosed and the influence of forecasts on the outcome of hostile bids. Disclosure was significantly more likely during contested bids. In agreed bids, probability of forecast disclosure was greater the shorter the bid horizon. In contested bids, forecasts were more likely where there were large block shareholdings, for larger targets and for targets in the capital goods industry. There was a clear tendency to disclose good news forecasts. A significant positive association between forecast disclosure and increase in offer price was found.
Oligopoly content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class.
Subtopics:
Intro to Oligopoly
Non-Cooperative Strategy I: The Kinked Demand Curve Model
Non-Cooperative Strategy II: Game Theory
Cooperative Strategy: Collusion & Cartels
Non-price Competition
game theory dan strategy competitive.pptxIqbal Daulay
The theory of games, or game theory for short, is a method for the study of rational behavior
by individuals and firms involved with interactive decision problems. Game theory is applied during situations in which decision-makers must take into account the reasoning of other decisionmakers. It has been used to determine the formation of business and political coalitions, the optimum price at which to sell products or services, the best site for a manufacturing plant, and even the behavior of certain species in the struggle for biological survival.
A Single period co operative advertising model where demand is dependent on p...iosrjce
We consider an extension of the co-operative advertising model developed earlier by the authors. We
consider a manufacturer-retailer channel co-ordination where the demand is modeled as a multiplicative effect
of price and an additive sales response function. We develop both sequential and simultaneous moves non cooperative
game structures where both retailer and manufacturer act simultaneously and independently and
compare them through propositions. Finally we develop a cooperative model and discuss the optimality of
pareto efficient scheme
Students should be able to:
Use simple game theory to illustrate the interdependence that exists in oligopolistic markets
Understanding the prisoners’ dilemma and a simple two firm/two outcome model. Students should analyse the advantages/disadvantages of being a first mover
Students will not be expected to have an understanding of the Nash Equilibrium
Brennan, Niamh [1999] Voluntary Disclosure of Profit Forecasts by Target Comp...Prof Niamh M. Brennan
This paper examines factors influencing voluntary forecast disclosure by target companies, whether good/bad news forecasts are disclosed and the influence of forecasts on the outcome of hostile bids. Disclosure was significantly more likely during contested bids. In agreed bids, probability of forecast disclosure was greater the shorter the bid horizon. In contested bids, forecasts were more likely where there were large block shareholdings, for larger targets and for targets in the capital goods industry. There was a clear tendency to disclose good news forecasts. A significant positive association between forecast disclosure and increase in offer price was found.
Oligopoly content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class.
Subtopics:
Intro to Oligopoly
Non-Cooperative Strategy I: The Kinked Demand Curve Model
Non-Cooperative Strategy II: Game Theory
Cooperative Strategy: Collusion & Cartels
Non-price Competition
game theory dan strategy competitive.pptxIqbal Daulay
The theory of games, or game theory for short, is a method for the study of rational behavior
by individuals and firms involved with interactive decision problems. Game theory is applied during situations in which decision-makers must take into account the reasoning of other decisionmakers. It has been used to determine the formation of business and political coalitions, the optimum price at which to sell products or services, the best site for a manufacturing plant, and even the behavior of certain species in the struggle for biological survival.
A Single period co operative advertising model where demand is dependent on p...iosrjce
We consider an extension of the co-operative advertising model developed earlier by the authors. We
consider a manufacturer-retailer channel co-ordination where the demand is modeled as a multiplicative effect
of price and an additive sales response function. We develop both sequential and simultaneous moves non cooperative
game structures where both retailer and manufacturer act simultaneously and independently and
compare them through propositions. Finally we develop a cooperative model and discuss the optimality of
pareto efficient scheme
A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
Imperfect competition covers all situations where there is neither pure competition nor pure monopoly.
Perfect competition and pure monopoly are very unlikely to be found in the real world.
In the real world, it is the imperfect competition lying between perfect competition and pure monopoly.
The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition.
Monopoly refers to the market situation where there is a
Single seller selling a product which has no close substitutes.
Monopolies are characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit
The word “oligopoly” comes from the Greek “oligos” meaning "little or small” and “polein” meaning “to sell.” When “oligos” is used in the plural, it means “few” ,few firms or few sellers.
DEFINATION:
Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.
Stackelberg's Game in Moser Baer -Cost Estimation - Mathematics for business ...MayankAgrawal205
A brief mathematical centric report on Stackelberg's Game in Moser Baer - Cost Estimation. Discussion on market types and Supply chain with respect to Estimation of Demand and Supply and using graphs for predictive analysis.
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
how can I sell my pi coins for cash in a pi APPDOT TECH
You can't sell your pi coins in the pi network app. because it is not listed yet on any exchange.
The only way you can sell is by trading your pi coins with an investor (a person looking forward to hold massive amounts of pi coins before mainnet launch) .
You don't need to meet the investor directly all the trades are done with a pi vendor/merchant (a person that buys the pi coins from miners and resell it to investors)
I Will leave The telegram contact of my personal pi vendor, if you are finding a legitimate one.
@Pi_vendor_247
#pi network
#pi coins
#money
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Latino Buying Power - May 2024 Presentation for Latino CaucusDanay Escanaverino
Unlock the potential of Latino Buying Power with this in-depth SlideShare presentation. Explore how the Latino consumer market is transforming the American economy, driven by their significant buying power, entrepreneurial contributions, and growing influence across various sectors.
**Key Sections Covered:**
1. **Economic Impact:** Understand the profound economic impact of Latino consumers on the U.S. economy. Discover how their increasing purchasing power is fueling growth in key industries and contributing to national economic prosperity.
2. **Buying Power:** Dive into detailed analyses of Latino buying power, including its growth trends, key drivers, and projections for the future. Learn how this influential group’s spending habits are shaping market dynamics and creating opportunities for businesses.
3. **Entrepreneurial Contributions:** Explore the entrepreneurial spirit within the Latino community. Examine how Latino-owned businesses are thriving and contributing to job creation, innovation, and economic diversification.
4. **Workforce Statistics:** Gain insights into the role of Latino workers in the American labor market. Review statistics on employment rates, occupational distribution, and the economic contributions of Latino professionals across various industries.
5. **Media Consumption:** Understand the media consumption habits of Latino audiences. Discover their preferences for digital platforms, television, radio, and social media. Learn how these consumption patterns are influencing advertising strategies and media content.
6. **Education:** Examine the educational achievements and challenges within the Latino community. Review statistics on enrollment, graduation rates, and fields of study. Understand the implications of education on economic mobility and workforce readiness.
7. **Home Ownership:** Explore trends in Latino home ownership. Understand the factors driving home buying decisions, the challenges faced by Latino homeowners, and the impact of home ownership on community stability and economic growth.
This SlideShare provides valuable insights for marketers, business owners, policymakers, and anyone interested in the economic influence of the Latino community. By understanding the various facets of Latino buying power, you can effectively engage with this dynamic and growing market segment.
Equip yourself with the knowledge to leverage Latino buying power, tap into their entrepreneurial spirit, and connect with their unique cultural and consumer preferences. Drive your business success by embracing the economic potential of Latino consumers.
**Keywords:** Latino buying power, economic impact, entrepreneurial contributions, workforce statistics, media consumption, education, home ownership, Latino market, Hispanic buying power, Latino purchasing power.
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
2. OLIGOPOLY
In oligopolistic markets, the products may or may not be
differentiated.
What matters is that only a few firms account for most or all of total
production.
In some oligopolistic markets, some or all firms earn substantial
profits over the long run because barriers to entry make it difficult or
impossible for new firms to enter – patents, access to technology,
reputation (natural barriers); excess production capacity with a threat
to flood the market (strategic barriers)
• Complex environment – price, quantity, investment decisions affects
rivals and elicit reaction from rivals
3. OLIGOPOLY
• Equilibrium in an Oligopolistic Market
When a market is in equilibrium, firms are doing the best they can
and have no reason to change their price or output.
Oligopoly is a prevalent form of market structure. Examples of
oligopolistic industries include automobiles, steel, aluminum,
petrochemicals, electrical equipment, and computers.
Duopoly - Market in which two firms compete with each other.
4. The Jargon of Game Theory
Player: decision makers
Strategy: one of the alternatives open to a
decision maker
Strategy set: the set of all possible strategies for
a particular decision maker
Strategy profile: a list of strategies, one for each
player
Payoffs: the value accruing to each player for a
particular strategy profile
5. DOMINANT STRATEGIES
● dominant strategy - a strategy which is the best choice for a player
regardless of what the other players do.
Suppose Firms A and B sell competing products and are deciding
whether to undertake advertising campaigns. Each firm will be
affected by its competitor’s decision.
6. The Jargon (contd.)
Dominant strategy: a strategy which is the
best choice for a player regardless of
what the other players do.
Equilibrium in dominant strategies: a
strategy profile in which each player is
playing a dominant strategy.
7. Unfortunately, not every game has a dominant strategy for each
player. To see this, let’s change our advertising example slightly.
12. Nash Equilibrium
Nash Equilibrium: A strategy profile where
every player’s strategy is his best response to
the strategies of the other players.
There may be many Nash Equilibria
There may be none
Both Nash and dominant strategies are stable
or self-enforcing. Since many games do not
have a dominant strategy equilibrium, Nash
equilibrium is useful as a more general
equilibrium concept.
13. Story
• KGB picks two “enemies of the state” at
midnight.
• KGB tells them
– If you both confess, both will be sent to Gulag
for 20 years
– If you both do not confess, there will be prison
for 2 years.
– If one of you confess and the other not, the
confessing partner will be state witness
(imprisonment of 1 year). But, the non-
confessing partner will be sent to Gulag
(Siberia) for 30 years.
16. OLIGOPOLY
● Cournot model
Oligopoly model in which firms
produce a homogeneous good,
each firm treats the output of its
competitors as fixed,
and all firms decide simultaneously
how much to produce.
17. The Cournot Model
● reaction curve Relationship between a firm’s profit-maximizing
output and the amount it thinks its competitor will produce.
● Cournot equilibrium Equilibrium in the Cournot model in which each firm correctly
assumes how much its competitor will produce and sets its own production level
accordingly.
Firm 1’s reaction curve
shows how much it will
produce as a function of how
much it thinks Firm 2 will
produce.
Firm 2’s reaction curve
shows its output as a
function of how much it
thinks Firm 1 will produce.
18. Example
• Demand Curve: P = 30 – Q1 – Q2
• Q1 and Q2 are quantities supplied by firms
1 and 2.
• Marginal Cost is Zero; Fixed Cost Zero.
• Clearly, if one of the firms supply more,
the other firms demand is lower.
• The profit of one firm depends on the other
firm.
Page 421, Chapter 12 of the Text Book
21. OLIGOPOLY
• The Linear Demand Curve—An Example
The demand curve is P =
30 − Q, and both firms
have zero marginal cost.
In Cournot equilibrium,
each firm produces 10.
The collusion curve shows
combinations of Q1 and Q2
that maximize total profits.
If the firms collude and
share profits equally, each
will produce 7.5.
Also shown is the
competitive equilibrium, in
which price equals
marginal cost and profit is
zero.
Duopoly Example
Figure 12.5
23. PRICE COMPETITION
● Bertrand model
Firms produce a homogeneous good,
Each firm treats the price of its competitors as
fixed,
All firms decide simultaneously what price to
charge.
The firms set price at marginal cost and make
no profit.
24. IMPLICATIONS OF THE PRISONERS’ DILEMMA
FOR OLIGOPOLISTIC PRICING
● price rigidity Characteristic of oligopolistic
markets by which firms are reluctant to change
prices even if costs or demands change.
● kinked demand curve model Oligopoly model in
which each firm faces a demand curve kinked at the
currently prevailing price: at higher prices demand is
very elastic, whereas at lower prices it is inelastic.
25. IMPLICATIONS OF THE PRISONERS’ DILEMMA
FOR OLIGOPOLISTIC PRICING
• Price Rigidity
Each firm believes that if it raises
its price above the current price
P*, none of its competitors will
follow suit, so it will lose most of its
sales.
Each firm also believes that if it
lowers price, everyone will follow
suit, and its sales will increase
only to the extent that market
demand increases.
As a result, the firm’s demand
curve D is kinked at price P*, and
its marginal revenue curve MR is
discontinuous at that point.
If marginal cost increases from MC
to MC’, the firm will still produce
the same output level Q* and
charge the same price P*.
The Kinked Demand Curve
Figure 12.7
26. IMPLICATIONS OF THE PRISONERS’ DILEMMA
FOR OLIGOPOLISTIC PRICING
• Price Signaling and Price Leadership
● price signaling Form of implicit collusion in which a
firm announces a price increase in the hope that other
firms will follow suit.
● price leadership Pattern of pricing in which one firm
regularly announces price changes that other firms then
match.
27. REPEATED GAMES
How does repetition change the likely outcome of the game?
● repeated game Game in which actions are
taken and payoffs received over and over again.
Confess
Don't
confess
Confess Don't
confess
-20,-20
-30,-1
-1,-30
-2,-2
PRISONER B
28. REPEATED GAMES
Suppose the game is infinitely repeated. In other words, my
competitor and I repeatedly set prices month after month, forever.
With infinite repetition of the game, the expected gains from
cooperation will outweigh those from undercutting.
● tit-for-tat strategy Repeated-game strategy in
which a player responds in kind to an opponent’s
previous play, cooperating with cooperative
opponents and retaliating against uncooperative
ones.
Tit-for-Tat Strategy
Infinitely Repeated Game
29. REPEATED GAMES
Finite Number of Repetitions
Now suppose the game is repeated a finite number of times—say, N
months. If my competitor (Firm 2) is rational and believes that I am
rational, he will reason as follows:
“Because Firm 1 is playing tit-for-tat, I (Firm 2) cannot undercut—that
is, until the last month. I should undercut the last month because then
I can make a large profit that month, and afterward the game is over,
so Firm 1 cannot retaliate. Therefore, I will charge a high price until
the last month, and then I will charge a low price.”
However, since I (Firm 1) have also figured this out, I also plan to
charge a low price in the last month. Firm 2 figures that it should
undercut and charge a low price in the next-to-last month.
And because the same reasoning applies to each preceding month,
the game unravels: The only rational outcome is for both of us to
charge a low price every month.
30. REPEATED GAMES
Tit-for-Tat in Practice
Since most of us do not expect to live forever, the unraveling
argument would seem to make the tit-for-tat strategy of little value,
leaving us stuck in the prisoners’ dilemma. In practice, however, tit-for-
tat can sometimes work and cooperation can prevail.
There are two primary reasons.
Most managers don’t know how long they will be competing with
their rivals, and this also serves to make cooperative behavior a
good strategy.
My competitor might have some doubt about the extent of my
rationality.
In a repeated game, the prisoners’ dilemma can have a cooperative
outcome.
31. SEQUENTIAL GAMES
As a simple example, let’s return to the product choice
problem. This time, let’s change the payoff matrix slightly.
● sequential game Game in which
players move in turn, responding to
each other’s actions and reactions.
32. SEQUENTIAL GAMES
● extensive form of a game Representation of possible moves
in a game in the form of a decision tree.
• The Extensive Form of a Game
33. OLIGOPOLY
• The Linear Demand Curve—An Example
Duopolists face the following market demand curve
P = 30 – Q
Also, MC1 = MC2 = 0
Total revenue for firm 1: R1 = PQ1 = (30 –Q)Q1 = 30Q1 – Q2
1 – Q1Q2
then MR1 = ∆R1/∆Q1 = 30 – 2Q1 –Q2
Setting MR1 = 0 (the firm’s marginal cost) and solving for Q1, we find
Firm 1’s reaction curve:
By the same calculation, Firm 2’s reaction curve:
Cournot equilibrium:
Total quantity produced:
1 2
115-
2
Q Q
2 1
115-
2
Q Q
1 2
10Q Q
1 2
20Q Q Q
(12.1)
(12.2)
34. OLIGOPOLY
• The Linear Demand Curve—An Example
If the two firms collude, then the total profit-maximizing quantity can
be obtained as follows:
Total revenue for the two firms: R = PQ = (30 –Q)Q = 30Q – Q2,
then MR = ∆R/∆Q = 30 – 2Q
Setting MR = 0 (the firms’ marginal cost) we find that total profit is
maximized at Q = 15.
Then, Q1 + Q2 = 15 is the collusion curve.
If the firms agree to share profits equally, each will produce half of
the total output:
Q1 = Q2 = 7.5
35. OLIGOPOLY
• First Mover Advantage—The Stackelberg Model
● Stackelberg model Oligopoly model in which one firm sets its
output before other firms do.
Suppose Firm 1 sets its output first and then Firm 2, after observing
Firm 1’s output, makes its output decision. In setting output, Firm 1
must therefore consider how Firm 2 will react.
P = 30 – Q
Also, MC1 = MC2 = 0
Firm 2’s reaction curve:
Firm 1’s revenue:
And MR1 = ∆R1/∆Q1 = 15 – Q1
Setting MR1 = 0 gives Q1 = 15, and Q2 = 7.5
We conclude that Firm 1 produces twice as much as Firm 2 and
makes twice as much profit. Going first gives Firm 1 an advantage.
2
1 1 1 1 2 1
30R PQ Q Q Q Q
2 1
115
2
Q Q (12.2)
(12.3)
(12.4)
37. Game Theory in Practise - I
• Bruce Bueno de Mesquita of New York
University predicted that Egypt’s
president, Hosni Mubarak, would fall
from power within a year in May 2010 .
– Nine months later Mr Mubarak fled Cairo
amid massive street protests.
http://www.economist.com/node/21527025
38. Game Theory in Practise - II
• In online auction of 2006 of radio-spectrum
licenses by America’s Federal
Communications Commission, Paul
Milgrom, a consultant and Stanford
University professor, customised his
game-theory software.
– Two of his clients, Time Warner and Comcast,
paid about a third less than their competitors
for equivalent spectrum, saving almost $1.2
billion.
39. THREATS, COMMITMENTS, AND CREDIBILITY
Suppose Firm 1 produces personal computers that can be used both
as word processors and to do other tasks. Firm 2 produces only
dedicated word processors.
• Empty Threats
40. THREATS, COMMITMENTS, AND CREDIBILITY
Race Car Motors, Inc., produces cars, and Far Out Engines, Ltd.,
produces specialty car engines.
Far Out Engines sells most of its engines to Race Car Motors, and a
few to a limited outside market.
Nonetheless, it depends heavily on Race Car Motors and makes its
production decisions in response to Race Car’s production plans.
• Commitment and Credibility
41. THREATS, COMMITMENTS, AND CREDIBILITY
Suppose Far Out threatens to produce big engines no matter what Race
Car does. If Race Car believed Far Out’s threat, it would produce big
cars: Otherwise, it would have trouble finding engines for its small cars.
Far Out can make its threat credible by visibly and irreversibly reducing
some of its own payoffs in the matrix, thereby constraining its own
choices.
Far Out must reduce its profits from small engines. It might do this by
shutting down or destroying some of its small engine production
capacity.
• Commitment and Credibility
42. THREATS, COMMITMENTS, AND CREDIBILITY
Developing the right kind of reputation can also give one a strategic
advantage.
Suppose that the managers of Far Out Engines develop a reputation
for being irrational—perhaps downright crazy.
They threaten to produce big engines no matter what Race Car
Motors does.
Now the threat might be credible without any further action; after all,
you can’t be sure that an irrational manager will always make a profit-
maximizing decision.
In gaming situations, the party that is known (or thought) to be a little
crazy can have a significant advantage.
• Commitment and Credibility
The Role of Reputation
43. THREATS, COMMITMENTS, AND CREDIBILITY
Our discussion of commitment and credibility also applies to
bargaining problems. The outcome of a bargaining situation can
depend on the ability of either side to take an action that alters its
relative bargaining position.
Consider two firms that are each planning to introduce one of two
products which are complementary goods.
• Bargaining Strategy
44. THREATS, COMMITMENTS, AND CREDIBILITY
Suppose that Firms 1 and 2 are also bargaining over a second issue—
whether to join a research consortium that a third firm is trying to form.
• Bargaining Strategy
45. ENTRY DETERRENCE
To deter entry, the incumbent firm must convince any
potential competitor that entry will be unprofitable.
But what if you can make an irrevocable commitment that will
alter your incentives once entry occurs—a commitment that
will give you little choice but to charge a low price if entry
occurs?
46. ENTRY DETERRENCE
• Strategic Trade Policy and International Competition
The development and production of a new line of aircraft are subject
to substantial economies of scale; it would not pay to develop a new
aircraft unless a firm expected to sell many of them.
Suppose it is only economical for one firm to produce the new aircraft.
The Commercial Aircraft Market
47. ENTRY DETERRENCE
• Strategic Trade Policy and International Competition
The Commercial Aircraft Market
European governments, of course, would prefer that Airbus produce the
new aircraft. Can they change the outcome of this game?
Suppose they commit to subsidizing Airbus and make this commitment
before Boeing has committed itself to produce. If the European
governments commit to a subsidy of 20 to Airbus if it produces the plane
regardless of what Boeing does, the payoff matrix would change.
48. ENTRY DETERRENCE
The disposable diaper industry in the United States has
been dominated by two firms: Procter & Gamble, with an
approximately 50-percent market share, and Kimberly-
Clark, with another 30–40 percent.
How do these firms compete? And
why haven’t other firms been able to
enter and take a significant share of
this $5-billion-per-year market?
The competition occurs mostly in the
form of cost-reducing innovation. As a
result, both firms are forced to spend
heavily on research and development
in a race to reduce cost.