HW10 - CHP 14 (Due: 11/23)
A market comprised of only two firms is called a
duopoly
Collusion between two firms occurs when
firms explicitly or implicitly agree to adopt a uniform business strategy.
The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called
game theory.
All of the following are characteristics of game theory except
independence among players
A dominant strategy
is one that is the best for a firm, no matter what strategies other firms use.
A Nash equilibrium is
reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.
Suppose we want to use game theory to analyze how an oligopolist selects its optimal price. The cells of the payoff matrix show
the profit that each producer can expect to earn from every combination of strategies by the firms in the market.
The prisoner's dilemma illustrates
why firms will not cooperate if they behave strategically.