Game Theory: Inside Oligopoly
in order to be considered a subgame perfect equilibrium, a set of strategies must
- be a nash equilibrium for each subgame - be a nash equilibrium
in order to sustain a cooperative outcome in an infinitely repeated game, players should
- cooperate provided no player has ever cheated - punish a player that cheats by selecting the one-shot, Nash equilibrium strategy
indicate which of the following are applications of multistage games.
- entry game - innovation game - sequential bargaining
in an infinitely repeated game,
- players receive playoffs during each repetition of the game. - collusion is possible
a simultaneous-move pricing game played by two firms is often called a _____ duopoly game
Bertrand
in a simultaneous-move, one-shot game, a Nash outcome is often inferior to the outcome that would result if the firms colluded. Which of the following is a reason why firms do not collude to reach a "better" outcome?
Collusion is illegal in the U.S.
a representation of a game that summarizes the players, the information and strategies available to them at each stage, the sequence of moves, and the payoffs associated with each strategy is called
an extensive-form game
a _____ strategy is one that results in the highest possible payoff independent of other players' actions
dominant
a _____ strategy is one that results in the highest possible payoff interdependent of other players' actions.
dominant
games in which players know a game will end, but they do not know when the game will end are called _____ _____ games
finitely repeated
games in which a player knows the game will end and knows when it will end are called
finitely repeated games
a game that is played over and over and provides payoffs during each repetition is called a(n) _____ _____ game
infinitely repeated
warranties and guarantees can be analyzed using ____ games
infinitely repeated
simultaneous, one-shot games are important in an environment characterized by which of the following?
interdependence
when firms know who their rivals are and who their rivals' customers are
it is easier to sustain a collusive agreement
when oligopolistic firms compete a finite, but uncertain, number of times, the firms
may or may not collude
what can firms do if low-quality goods are produced out of honest error?
offer product guarantees
if player A lacks a dominant strategy, but Player B has a dominant strategy, then Player A should assume which of the following?
player B will play the dominant strategy
a decision rule that describes the actions that a player will take at each decision point is called a
strategy
if a set of strategies is a nash equilibrium and at each stage, neither player can improve his payoff by changing his own strategy, it is called
subgame perfect equilibrium
non-credible threats prevent strategies for a multistage game from being
subgame perfect equilibrium
what occurs if players know precisely when a repeated game will end?
the end-of-period problem
when an employee announces his intention to quit an existing job, he has an increased incentive to "shirk" work on his last (or next-to-last) day. what is this an example of?
the end-of-period problem
in order for punishments to work,
there must be a way to link the past, future, and present to the seller
in highly concentrated markets, why do many firms advertise?
to cancel the effects of other firms' advertising
in a one-shot game, firms have incentive
to sell shoddy products
suppose Player "A" adheres to the same action each time the game is played until Player "B" takes an action that causes player "A" to shift his approach. player "A" has adopted a _____ strategy.
trigger
it is possible for firms to collude without the fear of being cheated on when they adopt which of the following strategies?
trigger strategy
the assumption that bargaining ends as soon as the second player rejects or accepts an offer is a criticism of sequential-move bargaining game
true
in order to sustain punishment strategies, it is important for firms to
- know when their rivals deviate from a collusive agreement. - be able to punish rivals for deviating
in a sequential-move, the player who moves first
cannot make decisions based on what the other player does
suppose a manager flips a coin to decide whether or not she should monitor employees' production. This is an example of a(n) _____ strategy
mixed
which game strategy prevents rivals from easily predicting a player's actions?
mixed strategy
a one-shot game means
the game is played only once
given the other players' strategies, if no player can make himself better off by changing his strategy, then the game has reached a _____ equilibrium
Nash
if firms seek to be infinitely lived,
it does not pay to cheat customers if the one-time gain is offset by a loss in future sales
in a finitely repeated game, a firm has no incentive to cheat if
it expects to earn less from cheating than from not cheating
what is true of collusion in a repeated game with a known final period?
it is not possible
by pursuing a dominant strategy, a player ensures that he/she will
maximize payoff independent of other players' actions
in the absence of a dominant strategy, a player might pursue a strategy that guarantees the highest payoff given the worst possible scenario. such a strategy is call a(n)
secure strategy
a game in which a player moves after observing another player's move is called a _____-move game
sequential
multistage games permit players to make
sequential decisions
suppose firm "A" observes a price decrease by firm "B". As a result, firm "A" also lowers its price. This is an example of a(n)
sequential-move game
a game in which each player makes decisions without knowledge of the other players' decisions is called a _____-move game
simultaneous
in the last period of a repeated game with a known end, players behave
the same as they would in a one-shot game
oligopolistic firms will collude and charge high prices in a a finitely repeated game played an uncertain number of times if
there is a high probability that the game will be played in subsequent periods