Module Identifier EC30110  
Academic Year 2003/2004  
Co-ordinator Professor John R Cable  
Semester Semester 1  
Pre-Requisite EC30230  
Mutually Exclusive EC36420  
Course delivery Seminars / Tutorials   4 Hours  
  Lecture   10 Hours  
Assessment TypeAssessment Length/DetailsProportion
Semester Exam1.5 Hours  100%

Learning outcomes

On successful completion of this module students should be able to:
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.


1. Introduction

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

Nasar, Chs 6-13
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

** Should Be Purchased
R Gibbons, (1992) A Primer in Game Theory Harvester Wheatsheaf
** Recommended Text
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
J Eatwell, M Milgate, P Newman (1989) The New Palgrave; Game Theory Macmillan
** Supplementary Text
S Nasar (2001) A Beautiful Mind (Biography of John Nash) Faber and Faber
S P Hargreaves Heap and Y Varoufakis (1995) Game Theory Routledge
G Romp (1997) Game Theory Oxford University Press
E Ramusen (1994) Games and Information 2nd edition. Blackwell
E Rasmusen (2001) Readings in Games and Information Blackwell
A K Dixit and B Nalebuff (1991) Thinking Strategically Norton
T C Shelling (1980) The Strategy of Conflict Harvard University Press
R Axelrod (1984) The Evolution of co-operation Basic Books
J McMillan (1992) Games, Strategies and Managers Oxford University Press


This module is at CQFW Level 6