ECON 102 Lecture Notes - Lecture 9: Strategic Dominance, Nash Equilibrium, Cournot Competition
Document Summary
Firms have to decide whether to enter new product markets, depending on the entry decisions of their rivals. A manager has to decide the compensation to o er new employees, depending on the wage o ers of competing employers. Bidders in sealed bid auctions simultaneously decide their o ers, as a function of their perception of other bidders" o ers. Hostile countries decide whether to attack or stand down, depending on how they perceive their adversaries will react. The objective of today"s class is to develop game theory as a systematic way to analyze all simultaneous decisions. Players: decision-making agents participating in the game (toyota, honda) Strategies: actions with non-zero probability of occurring (build, don"t build) Outcomes: various possible results of the game (four, each represented by one cell of matrix) Payo s: bene t for players from each possible outcome of the game (pro ts entered in each cell of matrix)
