1. 1 The High-Definition TV Game (DN, p. 121) 4,32,4 1,13,2 Low High U.S. effort Japanese Effort Payoffs to: U.S., Japan HighLow

2. 2 If the U.S. Moves First Payoffs to: (U.S., Japan)

3. 3 If Japan Moves First Dixit and Nalebuff, p. 122.

4. 4 The Disadvantage of Flexibility Not in Dixit and Nalebuff.

5. 5 A Clever Aphorism: “Any carpenter can turn a tree into a table, but a strategist can turn a table into a tree.”

6. 6 Threats and Warnings THREAT: A response rule that punishes others who fail to act as I wish them to. (I will fire you if you are a minute late for work.) WARNING: A statement telling others what bad things it will be in my self-interest to do to them if they fail to act as I wish them to. (I will fire you if you become an alcoholic and can't perform like you used to.) PROMISE: A response rule that rewards others who act as I wish them to. (I will give you a ten dollar tip if you provide good service in this restaurant.) ASSURANCE: A statement telling others what good things it will be in my self-interest to do for them if they act as I wish them to. (I like initiative, and will promote you even if your innovative idea turns out to be a failure.) This classification is from Dixit and Nalebuff, p. 126.

7. 7 Cournot Competition How Apex reacts Putting them together How Brydox reacts Apex is a monopoly if Q b = 0 Brydox is a monopoly if Q a = 0 If Q b = 120, Apex lets Brydox take the market If Q a = 120, Brydox lets Apex take the market

8. 8 Stackelberg Competition The Stackelberg equilibrium is the point on Brydox’s reaction curve that Apex likes best. Apex moves first, choosing output of 60, and Brydox responds with output of 30.

9. 9 Bertrand Competition (see p. 76 of Dixit and Nalebuff)