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Lecture 8

ECON 3M03 Lecture Notes - Lecture 8: Aero Fighters, European Route E6


Department
Economics
Course Code
ECON 3M03
Professor
Olivia Mesta
Lecture
8

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Maria Gallego EC 325 - N-Person Games in Normal Form - Gardner Chapter 5
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N-PERSON GAMES IN NORMAL FORM
Gardner Chapter 5 (part 1 of 3)
OUTLINE
Difference with Three Player games: The Spoiler
Competitive Advantage with 3 players
Market Niche with 3 players

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Maria Gallego EC 325 - N-Person Games in Normal Form - Gardner Chapter 5
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DIFFERENCE WITH THREE PLAYER GAMES: THE SPOILER
When there are 3 players in a game instead of two, fundamental differences arise.
Some NE results apply to 3 player case the same as they do to 2 player case, some do
not.
The simplest way to introduce a third player is to add a SPOILER.
o Spoiler is a player who does not benefit in a game but who determines
the outcome of the game
o For example in politics: A candidate who cannot win but who by taking away
votes from one of the other two candidates affects the outcome of the election.
o In sports a third player who cannot win a tournament but who determines who
wins. In 1980 Olympics, Finland was out of the medal. U.S had to play Finland as
the last game. If Finland had beaten the U.S., the USSR (Soviet Republic) would
have won the gold medal not the U.S. But U.S. won the medal.

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Maria Gallego EC 325 - N-Person Games in Normal Form - Gardner Chapter 5
3 of 26
COMPETITIVE ADVANTAGE WITH 3 PLAYERS
Players: three identical firms F1, F2, and F3 with equal shares of the market
Actions: adopt new technology (NT) or keep old technology (OT)
If no firm adopts the NEW technology
all have same competitive advantage
no change in market share (The payoffs reflect the change in market shares.)
If exactly one firm adopts the NEW technology
- firm gains competitive advantage and increases its market share by amount
a
- the two other firms lose market share equal to a/2 each.
If exactly two firms adopts the NEW technology
- two firms gain competitive advantage and equally split increase in market share
a
- the other firm loses market share a.
If all firms adopt the NEW technology
no gain in competitive advantage and firms maintain their market share
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