ECON 219 Lecture Notes - Lecture 16: Sequential Game, Chain Store
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ECON 219 Full Course Notes
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If he stays out, he earns pay off of 0 and big market gets 4. If he enters market, big market could fight or accept him. Little firm gets +1, big firm gets +2: what if this was a sequential game (yet finite) Maybe if you start fighting for those first few times, you wouldn"t have to continue to keep fighting the little firms might just stop coming in. The last time the game is played, the reputation for fighting won"t change anything, the little firm will still come in because he knows it doesn"t make sense for the big firm to fight him. Dominant strategy in round 10 little firm comes in! therefore big firm realizes fighting won"t every pay off: two kinds of big firms (tough or weak) Tough kind, will change the pay offs and will gain pleasure in fighting.
