Week 6

Question 1

Nash equilibrium

Answer 1

a concept of game theory where the optimal outcome of a game is one where no player has an incentive to deviate from his chosen strategy after considering an opponent’s choice. Overall, an individual can receive no incremental benefit from changing actions, assuming other players remain constant in their strategies. A game may have multiple Nash Equilibria or none at all.

Question 2

Bertrand paradox

Answer 2

describes a situation in which two players (firms) reach a state of Nash equilibrium where both firms charge a price equal to marginal cost (“MC”)

Question 3

Essentials of Games: Summary

Answer 3

• When you have a dominant strategy, you should always use it.
• When you know your opponent has a dominant strategy you can concentrate only on one part of the game.
• If you cannot solve the game that way need the concept of Nash equilibrium
• Nash equilibria are the only self enforcing equilibria.

Question 4

Repeated interactions

Answer 4

Question 5

Answer 5

The discount rate

Question 6

Disocunt factor formula

Answer 6

Question 7

Summary discounting

Answer 7

Question 8

Repeated interactions

Answer 8

Question 9

Collusion

Answer 9

Question 10

Collusion - types of agreements

Answer 10

• Vertical agreements: between a producer and supplier
• Horizontal agreements: between competitors

Question 11

Cournot competition

Answer 11

an economic model that describes an industry structure in which competing firms that make the same homogeneous and undifferentiated product choose a quantity to produce independently and simultaneously.