1. Game Theory

4.  The analysis of situations in which players are interdependent.  Or…from the book….  a method of modelling the strategic interaction between firms in an oligopoly.

5. Prisoners’ Dilemma  A game where, given the fact that neither player knows the strategy of the other player – the optimum strategy for each player leads to a worse situation than if they had known the strategy of the other player.  Or..from the book…  An example of game theory with a range of applications in an oligopoly.

6. The Prisoners’ Dilemma  Confess or not confess

8. Game Theory Pricing

10. Two firms – red and black Don’t advertiseAdvertise Don’t advertise Advertise

11. Two firms – red and black Don’t advertiseAdvertise Don’t advertise$5bn $1bn $7bn Advertise$7bn $1bn$4bn

13. Two drug dealers – blue and orange. Respect the turfInvade other guy’s turf Respect the turf Invade other guy’s turf

14.  A strategy is dominant if, regardless of what any other players do, the strategy earns a player a larger payoff than any other.

15.  Hence, a strategy is dominant if it is always better than any other strategy, for any profile of other players' actions. Depending on whether "better" is defined with weak or strict inequalities, the strategy is termed strictly dominant or weakly dominant. If one strategy is dominant, than all others are dominated. For example, in the prisoner's dilemma, each player has a dominant strategy.