Module Identifier EC30110  
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.


1. Introduction

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

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

Gibbons, Ch 1, pp.1-8

3. Nash Equilibrium and Static Oligopoly Models

Nash Equilibrium
Cournot oligopoly
Bertrand oligopoly
Welfare comparisons

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

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

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

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

Reading Lists

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