Module Identifier EC30110  
Module Title OLIGOPOLY AND INTRODUCTION TO GAME THEORY  
Academic Year 2004/2005  
Co-ordinator Professor John R Cable  
Semester Semester 1  
Other staff Mr Roberto Bonilla  
Pre-Requisite EC30220  
Mutually Exclusive EC36420  
Course delivery Seminars / Tutorials   4 Hours  
  Lecture   10 Hours  
Assessment
Assessment TypeAssessment Length/DetailsProportion
Semester Exam1.5 Hours  100%
Supplementary Exam1.5 Hours  100%

Learning outcomes

On successful completion of this module students should be able to:
UNDERSTAND AND APPLY 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, AND SEEN HOW THE APPLICATIONS OF THESE EXTEND BEYOND THE REALM OF OLIGOPOLY THEORY.

Aims

This module aims to equip students withthe basic models and techniques required to analyse and predict the behaviour of economic agents when there is strategic interaction between the choices they make.

Brief description

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

Content

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

Reading:
Nasar, Chs 6-13
Gibbons, Preface

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

Nash Equilibrium and Static Oligopoly Models
Nash Equilibrium
Cournot oligopoly
Bertrand oligopoly
Welfare comparisons

Reading:
Gibbons, Ch 1, pp.8-22

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

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

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

Reading Lists

Books
** Supplementary Text
M L Katz and H S Rosen (3e, 1998) Microeconomics, McGraw Hill, Chs 14, 15 and 16
** Should Be Purchased
R Gibbons (1992) A Primer in Game Theory, Harvester Wheatsheaf
B C Eaton, D F Eaton and D W Allen (1999) Microeconomics, Prentice Hall, Ch.15
S Nasar (2001) A Beautiful Mind, (Biography of John Nash), Faber and Faber
A K Dixit and B Nalebuff (1991) Thinking Strategically, Norton
R Axelrod (1984) The Evolution of co-operation, Basic Books
T C Shelling (1980) The Strategy of Conflict, Harvard University Press
E Rasmusen (2001) Readings in Games and Information, Blackwell
W Nicholson (1998) Microeconomic Theory, Dryden, Chs 10, 19 and 20
J McMillan (1992) Games, Strategies and Managers, Oxford University Press

Notes

This module is at CQFW Level 6