Chapter 10 (Game Theory: Inside Oligopoly) Flashcards
Simultaneous-move game
Game in which each player makes decisions without knowledge of the other players’ decisions
Sequential move game
Game in which one player makes a move after observing the other player’s move
One-shot game
Game in which the underlying game is played only once
Repeated game
Game in which the underlying game is played more than once
Strategy
In game theory, a decision rule that describes the actions a player will take at each decision point
Normal-form game
A representation of a game indicating the players, their possible strategies, and the payoffs resulting from alternative strategies
Dominant strategy
A strategy that results in the highest payoff of a player regardless of the opponent’s action
Secure strategy
A strategy that guarantees the highest payoff given the worst possible scenario
Nash equilibrium
A condition describing a set of strategies in which no player can improve her payoff by unilaterally changing her own strategy, given the other players’ strategies
Mixed (randomized strategy)
A strategy whereby a player randomizes over two or more available actions in order to keep rivals from being able to predict his or her action
Infinitely repeated game
A game that is played over and over again forever and in which players receive payoffs during each play of the game
Trigger strategy
A strategy that is contingent on the past play of a game and in which some particular past action “triggers” a different action by a player
Factors affecting collusion in pricing games
Number of firms, firm size, history of the market, and punishment mechanisms
Finitely repeated games
games in which players do not know when the game will end; and games in which players know when it will end.
End of period problem
When players know precisely when a repeated game will end. It prevents players from punishing other players when something goes wrong. They act like it’s a one-shot game.
