MGT 621 – Microeconomics

6. Oligopoly

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       Lecture Notes (Overheads Used In Class)

· Lecture 6 – Slides

Reading (Preparation)

· Pindyck/Rubinfeld, Chs. 12—13.

Questions (Preparation)

· Describe the three ingredients of a normal-form game?

· What is a Nash equilibrium of a game? Describe its defining characteristics in words?

· Why might a Nash equilibrium not lead to an “economically efficient” outcome?

· What are “strategic substitutes” and “strategic complements”? How do those notions relate to the value of moving first in a dynamic duopoly game?

· Provide an intuition for why there exists a continuum of Nash equilibria in a Bertrand duopoly pricing game where the two firms have different costs. Is there one Nash equilibrium that stands out over all the others? If yes, how could the firms “coordinate” so as to implement that Nash equilibrium rather than any other Nash equilibrium?

Background Reading (for future reference only)

· Fudenberg, D., Tirole, J. (1990) Game Theory, MIT Press, Cambridge, MA.

· Gal-Or, E. (1985) “First Mover and Second Mover Advantages,” International Economic Review, Vol. 26, No. 3, pp. 649—653.

· Geanakoplos, J. (1992) “Common Knowledge,” Journal of Economic Perspectives, Vol. 6, No. 4, pp. 53—82.