| basic elements of a game | the players, the strategies available to each player and the payoffs each player
|
 |
|
|
| bertrand competition | firms choose a price and accept that quantity sold depends on demand at that price
|
|
|
|
| cartel | a coalition of firms that agrees to restrict output for the purpose of earning an economic profit
|
|
|
|
| cournot competition | firms choose an output and accept the market price
|
|
|
|
| commitment device | a way of changing incentives so as to make otherwise empty threats or promises credible
|
|
|
|
| credible promise | a promise that is in the interests of the promissor to keep when the time comes to act.
|
|
|
|
| credible threat | a threat to take an action that is in the threatener’s interest to carry out
|
|
|
|
| decision tree (or game tree) | a diagram that describes the possible moves in a game in sequence and lists the payoffs that correspond to each possible combination of moves
|
|
|
|
| commitment problem | a situation in which people cannot achieve their goals because of an inability to make
credible threats or promises
|
|
|
|
| dominated strategy | any other strategy available to a player who has a dominant strategy
|
|
|
|
| dominant strategy | one that yields a higher payoff no matter what the other players in a game choose
|
|
|
|
| nash equilibrium | any combination of strategies in which each player’s strategy is his or her best choice, given
the other players’ strategies
|
|
|
|
| payoff matrix | a table that describes the payoffs in a game for each possible combination of strategies
|
|
|
|
| prisoner's dilemma | a game in which each player has a dominant strategy, and when each plays it, the resulting
payoffs are smaller than if each had played a dominated strategy
|
|
|
|
| reaction function | shows the preferred response of a firm in terms of a decision variable as a response to a
value of that variable chosen by the other firm(s)
|
|
|
|
| repeated prisoner’s dilemma | a standard prisoner’s dilemma that confronts the same players repeatedly
|
|
|
|
| residual demand curve | repeated prisoner’s dilemma a standard prisoner’s dilemma that confronts the same players repeatedly
|
|
|
|
| tacit collusion | firms behaving in a manner that resembles what might emerge from a collusive agreement
because they recognise their interdependence
|
|
|
|
| tit-for-tat | a strategy for the repeated prisoner’s dilemma in which players co-operate on the first move, then
mimic their partner’s last move on each successive move
|
|
|
|
| ultimatum bargaining game | one in which the first player has the power to confront the second player with a
take-it-or-leave-it offer
|