ECON 102 Chapter Notes - Chapter 24: Nash Equilibrium, Oligopoly, Strategic Dominance

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20 Jan 2017
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ECON 102 Full Course Notes
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Interconnected pricing each firm must take into account what it"s competitors do. 350 cans 350 cans 700 cans price total revenue. : if both cheat, both get less revenue than they would"ve if they had not cheated, nash equilibrium each firm uses its best strategy, given what they think the other company might do. Whe(cid:374) ea(cid:272)h fir(cid:373) has a differe(cid:374)t (cid:272)ost to produ(cid:272)e a good, it"s diffi(cid:272)ult to for(cid:272)e every fir(cid:373) to li(cid:373)it its production to a specific quota. The success of the action taken by one firm depends not only on their own action, but also on the action taken by the other firm. Economists use game theory to analyze firms operating in oligopoly markets. Each firm"s dominant (optimal) strategy no matter what the other firm does is to break the agreement. When each firm follows it"s best strategy, given the strategy of the other, a nash equilibrium occurs.

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