01:220:102 Lecture Notes - Lecture 20: Tacit Collusion, Nash Equilibrium, Oligopoly

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Published on 10 Nov 2018
Department
Professor
ECON 102 - Lecture 20
Game Theory
Predicting outcomes
Strategy
A decision rule that describes actions a player will take
Normal-form Game
Representation of a game indicating the players, their strategies, and the payoffs resulting
from alternate strategies
The Prisoner’s Dilemma
Dominant strategy
Best strategy regardless of your opponent’s strategy
Nash Equilibrium
Ignoring the effects of your choice on others
Self interest vs. group interest
Thelma vs. Louise
Thelma’s Dominant Strategy
Confess
Louise’s Dominant Strategy
Confess
Nash Equilibrium
Confess
Dominant strategy for both
Antitrust Policies
Efforts undertaken by govt to prevent oligopolistic industries from becoming or behaving
like monopolies
Tacit Collusion (unspoken agreements)
Can be limited by
Lever of concentration (lower number of firms, more conducive for collusion)
Complex products and pricing scheme
Selling different product lines- where each one is priced makes it more
difficult to collude
Smaller number of identical product lines across firms makes collusion
easy
Differences in interests
Bargaining power of buyers
Difficult for large number of buyers to get together and demand better
prices
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