Chapter 13: Game Theory And Competitive Strategy, Microeconomics, Sixth Edition, Robert S. Pindyck, Daniel L. Rubinfield

Front 1

game

Back 1

situation in which players (participants) make strategic decisions that taken into account each other's actions and responses.

Front 2

payoff

Back 2

value associated with a possible outcome.

Front 3

strategy

Back 3

rule or plan of action for playing a game

Front 4

optimal strategy

Back 4

strategy that maximizes a player's expected payoff.

Front 5

cooperative game

Back 5

game in which participants can negotiate binding contracts that allow them to plan joint strategies.

e.g. bargaining between a buyer and a seller over the price of a rug

Front 6

noncooperative game

Back 6

game in which negotiation and eforcement of binding contracts are not possible

e.g. a situation in which two competing firms take each other's likely behavior into account when independently setting their prices

Front 7

dominant strategy

Back 7

strategy that is optimal no matter what an opponent does

(I'm doing the best I can no matter what you do. You're doing the best you can no matter what I do.)

Front 8

equilibrium in dominant strategies

Back 8

outcome of a game in which each firm is doing the best it can regardless of what its competitors are doing.

Front 9

maximin strategy

Back 9

strategy that maximizes the minimum gain that can be earned.

Front 10

pure strategy

Back 10

strategy in which a player makes a specific choice or takes a specific action.

(non-random)

Front 11

mixed strategy

Back 11

strategy in which a player makes a random choice among two or more possible actions, based on a set of chosen probabilities.

(random)

Front 12

repeated game

Back 12

game in which actions are taken and payoffs received over and over again

Front 13

tit-for-tat strategy

Back 13

Repeated-game strategy in which a player responds in kind to an opponent's previous play, cooperating with cooperative opponents and retaliating against uncooperative ones.

Front 14

sequential game

Back 14

Game in which players move in turn, responding to each other's actions and reactions.

Front 15

extensive form of a game

Back 15

representation of possible moves in a game in the form of a decision tree

Front 16

strategic move

Back 16

action that gives a player an advantage by constraining his behavior.

Front 17

How does a firm deter entry?

Back 17

To deter entry, the incumbent firm must first convince any potential competitor that entry will be unprofitable.