Module 1 Notes Flashcards
a group of firms that collude to produce the monopoly output and sell at the monopoly price.
Cartel
occurs when firms act together to reduce output and keep prices high. It is generally illegal to do so.
Collusion
The ability to choose and stick with an action that might later be costly
Commitment
A game in which players are allowed to form coalitions with binding
commitments that are externally enforced (e.g. through contract law).
Cooperative Game
The best response to every possible strategy of the other player(s)
Dominant Strategy
an oligopoly with only two firms in the industry. For instance, Boeing and Airbus Industries are the only two firms that make
commercially wide-bodied aircraft
Duoploy
when the first player to act in a sequential game gets a benefit from doing so
First-mover advantage
a branch of mathematics that economists use to analyze situations in which players must make decisions and then receive payoffs based on what decisions the other players make. We sometimes call the
interaction strategic since, like sports, players need to anticipate their rival’s choices.
Game Theory
can arise in strategic games is there are more than one possible stable outcomes.
Multiple Equilibria
a set of strategies where each agent will not unilaterally deviate from their strategy given opponent’s strategy.
Nash Equilibrium
if players in a game cannot form alliances or if all agreements need to be self-enforcing
Non-Cooperative Game
occurs when a few large firms have all or most of the sales in an industry
Oligopoly
Represents the payoffs for each action players can take
Payoff matrix
a strategy that involves always choosing one particular action for a situation.
Pure strategy
a game in which the gains from cooperation are larger than the rewards from pursuing self-interest. The dilemma arises since agents end up pursuing self-interest and are worse off than if they
could cooperate.
Prisoner’s Dilemma
a game in which agents take turns know what has gone on before they have to make their choice
Sequential Game
a game in which agents make their choice at the same time and do not know what other agents are planning. However, players can anticipate what others are planning to do.
Simultaneous Game
a predetermined ‘program of play’ that tells an agent what actions to take in response to every possible strategy other players might use
Strategy
If there exists another possible outcome where at least one player is better off the equilibrium is said to be…..?
Suboptimal Equilibrium
The best response to every possible strategy of the other player(s) since payoffs are never worse (though may not be better in some outcomes).
Weakly Dominant strategy
the sum of payoffs is constant.
constant-sum games
one player’s loss is another’s gain, so the sum of the payoffs is zero
Zero-sum game
