EC260 Lecture Notes - Lecture 8: Trigger Strategy, Normal-Form Game, Oligopoly
Document Summary
Set of players, i {(cid:883),(cid:884), ,n} where n is a finite number. Each player strategy set or feasible actions consist of a finite number. Payoffs: of strategies: player 1"s strategies are s(cid:2869)={a,b,c, , player 2"s strategies are s(cid:2870)={a,b,c, , player 1"s payoff: (cid:2869)(cid:4666)a,b(cid:4667)=(cid:883)(cid:883, player 2"s payoff: (cid:2870)(cid:4666)b,c(cid:4667)=(cid:883)(cid:884) Suppose 1 thinks 2 will choose a, then 1 should choose a player 1"s best response to a is a. A is player 1"s dominant strategy since better off choosing a regardless of what 2 chooses. Dominant strategy: strategy resulting in the highest payoff regardless of the opponent"s action. If a is a dominant strategy for player 1 in the previous game, then: No dominant strategy, but 2 should reason 1 will play a, so 2 should choose c. Nash equilibrium: a is player 1"s best response to c, c is player 2"s best response to a.
