ECON 102 Lecture Notes - Lecture 10: Sequential Game, Simultaneous Game, Backward Induction
Document Summary
Firms compete with other for years, making price and quantity decisions while occasionally colluding and occasionally competing. Regulators warned they would let banks fail, but ultimately capitalized them when the banks" failure threatened the nancial system. A new bankruptcy bill is seen as key to increase the number of entrepreneurial startups. Restaurants at train and bus stations have worse quality food than restaurants with regular clientele in town. Analyzing sequential decision-making is the key to understanding these situations. A game tree shows the di erent strategies that each player can follow in the game and the order in which those strategies get chosen. Game trees solved by starting at end of tree. For each decision point, nd optimal decision for player at that point. Solution to sequential game di ers from that of simultaneous game. The rst mover can force second mover"s hand. Illustrates value of commitment (i. e. limiting one"s own actions) rather than exibility.
