Multistage Games Many economic situations exist in which one agent acts before the other Decision makers must consider the manner in which their rival will respond to their decision Decision makers should only consider credible responses

Pricing Strategies Attempt to discourage entry by charging a low price -low price must somehow convey bad news to potential entrants about their post-entry profitability in the market -potential entrants must believe that the low price will persist after entry

Low price in second period is not credible—so the entrant should enter Is there any way to use price to deter entry? -low price can be signal of low costs What about signaling aggressive pricing behaviour? -would have to keep it up for ever—not profitable

Research and Development and New Technology Adoption Three Stages of Technological Progress: -basic research -applied research -diffusion (adoption, imitation) Two types of innovations: -product (create new goods/services) -process (reduce cost of producing)

Incentive to innovate and market structure Replacement effect: -monopolist’s pre-invention profits act as a disincentive to innovate Efficiency effect: -benefit from being a monopolist as compared to 1 of 2 duopolists > than benefit from being 1 of 2 duopolists as compared to out of the industry -depends on level of uncertainty monopolist has about likelihood potential entrant enters (if less likely, monopolist has less incentive to innovate) -depends on speed of innovation (if drastic, potential entrant has as much incentive as monopolist

Technology adoption If alone in market, delay adoption until demand is high enough and adoption costs are low enough But what if more than one firm? Preemptive equilibrium: -consider a process innovation and Bertrand competition -after one firm has adopted, other may delay (never pays to be second)

Delayed adoption equilibrium: -consider a product innovation such that consumers will switch to the innovated product -this triggers immediate imitation in order not to loose customer base -if rival can be observed, equilibrium is for both firms to adopt the strategy “adopt if I see my rival adopt”, and so neither ever adopts -if rival can’t be observed, equilibrium is for both to adopt immediately