Module Identifier EC30110  
Module Title OLIGOPOLY AND INTRODUCTION TO GAME THEORY  
Academic Year 2001/2002  
Co-ordinator Professor John Cable  
Semester Semester 1  
Pre-Requisite EC30230  
Mutually Exclusive EC31510  
Course delivery Lecture   10 Hours  
  Seminars / Tutorials   4 Hours  
Assessment Exam   1.5 Hours   100%  

Brief description


This module provides an introduction to central concepts of non-cooperative game theory and illustrates their application to oligopoly.

Learning outcomes


On completion of the course students will be familiar with the key economic models dealing with interactive competition amongst firms when the behaviour of rivals must be accommodated. They will also have been introduced to game theoretic concepts and methods in analysing strategic behaviour, which have applications beyond the realm of oligopoly theory.

Content


1. Introduction


Oligopolistic interdependence
Incidence of oligopoly
Modelling problems
Game theory: history and method


Reading:
Gibbons, Preface
Lyons and Varoufakis, pp.79-83
Dixon, pp.127-128


2. A normal form game: the Prisoners' Dilemma


Description of normal form games
The Prisoners' Dilemma game
Strategic dominance as solution concept


Reading:
Gibbons, Ch 1, pp.1-8


3. Nash Equilibrium and Static Oligopoly Models

Nash Equilibrium
Cournot oligopoly
Bertrand oligopoly
Welfare comparisons


Reading:
Gibbons, Ch 1, pp.8-22
Lyons and Varoufakis, pp.84-88
Dixon, pp.128-136



4. Dynamic Games and Leader – Follower Behaviour


Description of dynamic games
Extensive form: 'game trees'
Backwards induction
Stackelberg equilibrium
Welfare comparisons


Reading:
Gibbons, Ch 2, pp.55-64
Dixon, pp.128-136


5. Perfect Equilibrium and Market Entry in Dynamic Games


The two stage entry game
Perfect equilibrium
Entry deterrence: the role of commitment and reputation


Reading:
Gibbons, Ch 2, pp.71-73
Lyons and Varoufakis, pp.88-91
Dixon, pp.145-155


6. Repeated Games


Co-operative Behaviour
Finitely repeated games
The chain-store paradox and two-period Prisoners' Dilemma
Infinitely repeated games
Co-operation in the Prisoners' Dilemma
Collusion amongst oligopolists: cartels and tacit collusion
Welfare comparisons


Reading:
Gibbons, Ch 2, pp.82-107
Lyons and Varoufakis, pp.99-106
Dixon, pp.155-161

Reading Lists

Books
R Gibbons,. (1992) A Primer in Game Theory. Harvester Wheatsheaf
B Lyons and Y Varoufakis. (1989) "Game Theory, Oligopoly and Bargaining", in J D Hey (ed) Current Issues in Microeconomics,. Macmillan
H Dixon. (1988) "Oligopoly Theory made Simple", in S Davies, et al, Economics of Industrial Organisation. Longman