ECON-UA 2 Lecture Notes - Strategic Dominance, Oligopoly, Price Fixing
8 May 2014
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No job s r e y o p m. George"s dominant strategy is to not call and show up. Suppose we have 2 airlines, each has 2 possible actions: high price and low price. American strictly dominant strategy: low price (and same for delta) 0. 5 n a c i r e m. What is best for delta depends on american now. American still has a dominant strategy so we can still predict the outcome. Repeated trials: same game can be played multiple times. Cooperative behavior: players realize that self-interest outcome is worse than cooperative outcome. Cooperative behavior between oligopolies: explicit collusion, meet and make an agreement to charge higher price, called price fixing , extreme case of price fixing is called a cartel (maximize sum of all firms profits) d. In practice: decide on profit max total output, each firm is allocated share of market, as long as each abides by agreement, profit max is produced, 2 big problems: i.
