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Lecture 29

# ECON101 Lecture 29: Week 11 / Mar 29 - Game theory, repeated games competition vs cooperation, concentration measures Premium

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School
University of Alberta
Department
Economics
Course
ECON101
Professor
Gordon Lee
Semester
Winter

Description
Week 11 / Mar 29, 2017 1. Game theory 2. Repeated games 3. Competition vs Cooperation 4. Concentration measures ie: 2 companies: subscription for music streaming Apple and Spotify Suppose each ﬁrm charges a subscription rate of \$9.99. Each will earn a proﬁt of \$7.5M However these ﬁrms could charge a subscription rate of \$14.99. If they did, each would earn a proﬁt of \$10M If 1 ﬁrm charges \$9.99 and the other \$14.99, The ﬁrm charging \$9.99 earns \$15M, the other ﬁrm earns \$5M Cooperative Equilibrium: Each ﬁrm charges \$14.99 (but it's illegal for them to price ﬁx and explicitly cooperate) Apple : If Spotify charges \$9.99, I charge \$9.99 If Spotify charges \$14.99, I charge \$9.99 Dominant strategy: \$9.99 Spotify: Dominant strategy: \$9.99 Cartel = several ﬁrms acting together like a monopolist. Players agree (sometimes illegally) to cooperate to max collective economic proﬁts. (However, they will soon start producing more than agreed on) University of Chicago - Economics dept: used this result to clean that cartels are not stable Tit-for-tat strategy = a player cooperates Yale University - Economics dept: until the other player Response: suppose the fame is played more than once defects and then defects until the other Repeated Games player cooperates ie: Suppose the game is played 4 times again. Yale: result both players collude Chicago response - Backwards induction conclusion: ﬁrms will always cheat 㱺 Competition New players: UCLA, Standford uncertainty in the payoﬀs and in the # of times the game will be played 㱺 cannot use backwards induction (as long as you have uncertainty) UCLA, Stanford ??? COOPERATION or COMPETITION Empirical research by economists like Joe Bain and Herbert Simon suggests that the relat
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