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Lecture 10

# ECON 100B Lecture Notes - Lecture 10: Repeated Game, The Incredibles, Simultaneous Game

Department
Economics
Course Code
ECON 100B
Professor
CHAKRABORTY, D
Lecture
10

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Econ 100B Lecture 10 - May 15, 2018
Repeated games and cartels
Repeated games
â—ŹDisney is ready to release â€śthe Incredibles 2â€ť while DreamWorks is ready to release â€śthe
Boss Babyâ€ť
â—ŹThe cost of making each movie is \$175 million
â—ŹPeople will watch either one
â—ŹAssumption
â—‹Advertising will not bring new audience to the theater
â—ŹAdvertising costs money and will affect profit
â—ŹIf both advertise: they split the maker and each earns \$400 million
â—‹Profit = \$400 M - (175+75) = 150 M
â—ŹIf non advertise: they split the market and earn \$400 M
â—‹But profit = 400 - 175 = 225 M
â—ŹIf one company advertises and other does, the revenge of the company that advertises is
\$700M and the other company will only earns \$100M
â—‹Profit = 700 - 250 = 450 M
â—‹Loss = 100 - 175 = -75M
Disney
Dreamworks
150, 150
450, -75
-75, 450
225, 225
â—Ź The dominant strategy is to advertise
â—ŹUnless there is a collusion or an agreement both firms are stuck with an inferior outcome:
â—ŹAssume that the firm are able to communicate and reach an agreement that they will not
â—‹The firms do not have an incentive to keep the promise because they have an
incentive to deviate for a higher profit
â—‹We assume that the decision is simultaneous and there is interaction only one time
â—‹What if they productions houses know that they are going to en up in the same
situation again next year?
â—ŹWhen a simultaneous game is played repeatedly, layersâ€™ strategies consist of actions
taken during each reputation