Game Theory
The game begins with a case that occurred on two prisoners. Both prisoners were suspected criminals and their work. Both prisoners were placed in a different room, then to be given the question of whether it is true they are committing a crime or not. Option given is: If the prisoner A prisoner confessed while B does not confess, then A will be free, while B will get a 6 month sentence. If they plead not guilty, then it will get a 1 month prison sentence. And if both confess, they will each get a 3 month prison sentence. Zerosum game
In game theory and economic theory, a zero–sum game is a mathematical representation of a situation in which a participant's gain (or loss) of utility is exactly balanced by the losses (or gains) of the utility of the other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero.
Prisoners dilemma game is an archeptypal example of of a nonzero sum game.The distinction between a zero sum game and a nonzero sum game is crucial.In zero sum game,with two players for simplicity,the utilities of players always sum to zero wathever the game’s outcome.On certain simplifying assumption,a zero sum game is equivalent to a zero money sum game.In this circumstances,zero sum game are such that,whatever the outcome,one player’s monetary is gane and the other is loss.This contrast with nonzero sum games,where outcome do not simply involve transfer of money or utility between players.In nonzero sum gamess the interest of the players are not directly opposed and hence it may be possible for the players to gain from cooperation.Hence the assumption that the game is non cooperatively played takes on added aignificance with nonzero sum games Nonzero–sum
Many economic situations are not zerosum, since valuable goods and services can be created, destroyed, or badly allocated in a number of ways, and any of these will create a net gain or loss of utility to...
...choose a price (p1; p2) instead of choosing a quantity. the same information given in the first part of this problem, what is the Nash equilibrium in prices?
p1 = p2 = MC = 6
5. (20 total points) Suppose that two players are playing the following game. Player 1 can choose either Top or Bottom, and Player 2 can choose either Left or Right. The payoffs are given in the following table:
Player 2
Player 1
Left
Right
Top
1 2...
...market, it would charge a price of $15 a unit. Marginal revenue for this monopolist would be
MR = 30  2Q,
Profit maximization implies MR = MC, or
30  2Q = 0, Q = 15, (using the demand curve) P = 15.
The current situation is a Cournot game where firm 1's marginal costs are zero and firm 2's marginal costs are 15. We need to find the best response functions:
Firm 1’s revenue is
and its marginal revenue is given by:
Profit maximization implies MR1 = MC1 or...
...& Market Systems Oligopoly  GameTheory 

“When I am getting ready to reason with a man I spend onethird of my time thinking about myself and what I am going to say, and twothirds thinking about him and what he is going to say.”
Abraham LincolnA game occurs when there are two or more interacting decisiontakers (players) and each decision or combination of decisions involves a particular outcome (payoff.) The fate (or the payoff) of...
...collusive conduct. Using the economic theory presented in class, analyse the drivers of collusion in your chosen case. Also, critically evaluate the effects of an eradication of collusion – which would strengthen the competition between these industry rivals – on both the welfare of consumers and the financial performance of the firms themselves.
In 2002, according to publications by the Toy Industries of Europe (2003), the UK was the largest consumer of toys and...
...Topic 5: GameTheory Applied to the Movie and Aviation Industries
I. Case study: GameTheory Applied to the Movie Business
In the movie business, one of the trickiest decisions producers face is what type of movie to make. Suppose there are 2 movie studios and that their producers are trying to decide whether to make an Action Adventure (AA) or Romantic Comedy (RC) movie. Suppose each of the studios does not know what type of...
...Gametheory is defined as “the study of the ways in which strategic interactions among economic agents produce outcomeswith respect to thepreferences of those agents, where the outcomes in question might have been intended by none of the agents” by the Stanford Encyclopedia of Philosophy (Ross 1997). The disciplines most involved in gametheory “are mathematics, economics and the other social and behavioral sciences” (McCain 1997)....
...group of interacting decision makers (Nash equilibrium).
Now that we have realized that we have to move in a somewhat similar direction to the economists, maybe we should consult the experts of the gametheory at this point. In the 1980’s Axelrod and Hamilton worked on a famous problem in the gametheory, the Prisoner’s Dilemma, exactly because it deals with this problem. The rational pursuit of individual selfinterest drives...
...Topic Ten: Oligopoly and GameTheory
1. Suppose Penguin and Joker are the only two firms in the death ray market. Each firm is considering two possible pricing strategies – either P = $700 or
P = $1500 – for their goods. The following payoff matrix gives the profit outcomes (in $m).
Joker
 P = $700  P = $1500 
Penguin
P = $700  30
35
 27
41

P = $1500  35
29
 38
39

(a) What price will each of the...