Week 5

• a strategy is dominating if it generates higher payoffs regardless of the opponents strategy
• a strictly dominating strategy means that the strategy is better for both decisions
• a weakly dominating strategy means that the strategy is better or equal for all the other players decisions
• perfect competition means that firms maximise profit subject to technology and market prices
• an oligopoly has only a few big firms that govern the whole market
• an oligopoly can alter their strategy to decide how much to bring to the market
• Game theory is used to understand the outcomes of oligopoly markets and markets that are not perfectly competitive
• game theory is a mathematical model used to study conflict and cooperation between intelligent and rational decision makers
• game theory shows interactive decision theory; where more than one individual is making decisions
• decision makers are intelligent, so can compute outcomes of decisions
• decision makers are rational, so they compare and make their decision to best satisfy their own objective
• the Game Theory 'model' makes a real situation a game
• in game theory, players make choices (strategies)
• in game theory, payoffs from outcomes come from the strategies
• Nash Equilibrium follows 'best response equilibrium'; what is one players best strategy if the other player plays a specific strategy
• Nash equilibrium is found at the best response against the best response of two players
• Nash equilibrium is when everyone is doing the right thing, given others are also doing the right thing
• Nash equilibrium is when no player can benefit from deviating if no-one else deviates as well
• sequential game theory involves players moving 1 by 1, and being able to respond to other players decisions
• in normal form game theory, choices are made without the other players knowing their decisions
• simultaneous (normal form) game theory involves using sealed bids or prices being set for a time period, where other players cannot change their decision based on other players decisions