Module Identifier EC30110  
Module Title OLIGOPOLY AND INTRODUCTION TO GAME THEORY  
Academic Year 2002/2003  
Co-ordinator Professor John R Cable  
Semester Semester 1  
Pre-Requisite EC30230  
Mutually Exclusive EC31510  
Course delivery Lecture   10 Hours  
  Seminars / Tutorials   4 Hours  
Assessment Semester Exam   1.5 Hours   100%  

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.

Brief description

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

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
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
R Gibbons,. (1992) A Primer in Game Theory. Harvester Wheatsheaf