ECO204Y1 Study Guide - Midterm Guide: Coase Theorem, Nash Equilibrium, Security Alarm
16 Mar 2018
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Best response iff player does not want to deviate. Almost all games have odd nr of equilibria. Happens when all players are playing best response to what the other players are doing. Priso(cid:374)ers" dile(cid:373)(cid:373)a: 1) nash equilibrium, 2) overall outcome not optimal, 3)each player making individually rational choice, 4)both players would be better off, if they jointly agree to not behave individually rational choice. Collusion is feasible iff: pay-off de(cid:448)iate+ pay-off (pay-off if colluding this period) pay-off pu(cid:374)ish. =(cid:2869) period + payoff if punished future period => so feasible iff (pay-off (cid:272)ollude pay-off pu(cid:374)ish) (lt benefit from colluding) pay-off de(cid:448)iate . Tit-for-tat and = (cid:2778) . (cid:272)ollude ((cid:1845)(cid:1846) benefit if deviating). Sustainable collusion may be feasible if: 1-games are infinitely often repeated or randomly terminated. 2-lt benefit from collusion exceeds st benefit from deviation. P. collusion is more likely if/with: transparent pricing *announcements of p. changes ahead of time*, price matching policies, predictable demand, few firms, limited capacity.
