MOT Seminar. John Musacchio 4/16/09

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "MOT Seminar. John Musacchio 4/16/09"

Transcription

1 Game Theory MOT Seminar John Musacchio 4/16/09 1

2 Who am I? John Musacchio Assistant Professor in ISTM Joined January 2005 PhD from Berkeley in Electrical l Engineering i Research Interests Game Theory applied to pricing problems. Modeling and control of networks Experience 2½ years at a Start-Up Helped design a chip-set for computer-networking switches 2

3 What is Game Theory? Study of interacting strategic agents. Used frequently in economics and other sciences. Competition between firms. Auction Design. International Policy. Evolution of Species. And many more 3

4 User Discrimination: Good or Bad? Content Provider A??? Content Provider B ISP 1 ISP 2 ISP 2 needs to invest To enable A s service

5 Net Neutrality: Issues??? A Should A have to pay ISP 2? B ISP 1 ISP 2 Content providers pay their ISP Would allowing 2 to charge A encourage 2 to invest? discourage A to invest? What revenue sharing mechanisms should new Internet have? John Musacchio

6 Classic Example: Prisoner s Dilemma Prisoner A Silent Betray Prisoner B Silent (-1,-1) 1) (-4,0) Betray (0,-4) (-3,-3) 3) 8

7 Competing Firms Firm A Firm B Stagnate Innovate Stagnate (2,2) 2) (-1,3) Innovate (3,-1) (0,0) 0) 9

8 Elements of a Game Players Strategy A Player s action Innovate or Stagnate Strategy Space Set of all possible actions Strategy Profile Particular combination of player strategies. Payoff A mapping from player strategy profile to player rewards Example: U( (I, I) ) = (0,0) 10

9 Solution Concept Nash Equilibrium A strategy profile from which no player has an incentive to deviate unilaterally Example (I,I) is a NE U A (I, I) > U A (S, I) Firm A cannot do better by deviating U B (I, I) > U B (I, S) Firm B cannot do better by deviating (I, I) is a Nash Equilibrium. Do all games have a Nash Equilibrium? 11

10 Example: Leader, Imitator (matching pennies) Idea: Player 1 (Imitator) wants a match, Player 2 (Leader) doesn t. What is the Nash Equilibrium? Expand strategy space to allow randomized or mixed strategies. Product A Leader Product B Imita ator Leader Deviates Product A (1,-1) (-1, 1) Imitator Deviates Leader Deviates Product B (-1,1) (1,-1) Imitator Deviates 12

11 Example: Leader, Imitator 1 Lead der Probabilit ty of A 0 Leader s Best Response 0 1 Imitator Probability of A NE is not strict in this case. Imitator s Best Response Nash Equilibrium (0.5, 0.5) (At NE, players are indifferent to switching) Such an NE is said to be not strict 13

12 Nash Existence Finite Strategy Space (J.F. Nash 1950) Every n-player game has at least one Nash Equilibrium (possibly mixed). 14

13 Static vs. Multi Stage Static Games Players choose strategies simultaneously, without knowing what the others do. Multi-Stage Game is played in multiple rounds. Players may see how others played in previous rounds. That information helps choose how to play in the next round. A strategy is a full specification of what actions to take in each stage, as a function of the observations from previous stages 15

14 Repeated Innovating Firms Game (Repeated Prisoners Dilemma) Firm A Firm B Recall, Both firms innovate in the one-shot game. Combined reward is 0. If they had both stagnated instead, their combined reward would have been 4. What happens if the game is repeated? Same game is repeated every year forever. NPV of future payoffs is discounted by a discount factor β. 16

15 Aside: What is Net Present Value? How much is 1 worth to you 1 year from now? Something less than a 1 say β. β 1 = Year 0 1 Year 0 1 β β 2 β n 3 = Year... n-2n-1 Year 0. n-3 Year 0 n 1 17

16 Repeated Innovating Firms Game (Repeated Prisoners Dilemma) Firm A s: Firm B s Where x n = Albert s action in slot n A( ) = Albert s payoff function y n = Bob s action in slot n B( ) = Bob s payoff function β = Discount factor 18

17 Repeated Innovating Firms Game Strategy: I will stagnate as long as you do. Threat: If you choose to innovate once, I will innovate forever thereafter. This is a NE if β > 1/3 19

18 Repeated Innovating Firms Game Proof: Suppose at time t, A innovates B retaliates by innovating forever thereafter A is forced to innovate at times t+1, t+2, as well A s As net payoff One Step Reward Future Consequences 20

19 Repeated Innovating Firms Game Intuition When β is large, future consequences of breaking the collusion agreement outweigh short term gain. When β is small, short term gain is more important than long term consequences. 21

20 SPE Player 2 L (2,2) 2) Player 1 L R L (1,10) R (-1,-1) 1) L R (2,2) (-1,-1) R (1,10) (1,10) Player 2 can threaten to choose R in stage 2 to get Player 1 to pick R is stage 1. But in the subgame starting in slot 2, Player 2 is compelled to pick L. Player 2 s threat is not credible. (R,R) is indeed a NE, but not SPE. Only (L,L) L) is a SPE. 22

21 Repeated Innovating Firms Game We said that the following strategy profile is a Nash Equilibrium: Strategy: I will stagnate as long as you do. Threat: If you choose to innovate once, I will innovate forever thereafter. Is it a SPE? Yes. In the subgame after the first deviation, it is rational to Innovate forever thereafter if you expect your opponent to do the same. 23

22 Repeated Innovating Firms Game Folk Theorem Cooperating can be rational if games are repeated forever. However, threat strategies can be used to enforce other outcomes. (3,-1) (2,2) Claim: Any Reward vector In the green region can be enforced by an SPE,. (0,0) (-1,3) 24

23 Repeated Innovating Firms Game Proof: Consider v in the green region: v (0,0) Pick integers N j that satisfy One shot rewards. They agree to play (I,I) I) the first N 1 steps (S,S) the next N 2 steps, etc When someone deviates from the schedule, the other retaliates by playing I forever thereafter. 25

24 A Two-Sided Market Analysis of Provider Investment Incentives With an Application to the Net-Neutrality N Issue. John Musacchio Technology and Information Management University of California, Santa Cruz Galina Schwartz and Jean Walrand EECS University of California, Berkeley

25 Net-Neutrality Dimensions of Debate Offering of grades of service Freedom of speech Whether Local ISPs should be allowed to charge content providers

26 Overview Content Provider A??? Content Provider B ISP 1 ISP 2 ISP 2 needs to invest To enable A s service

27 Overview A??? Should A have to pay ISP 2? B ISP 1 ISP 2 Content providers pay their ISP Would allowing 2 to charge A encourage 2 to invest? discourage A to invest?

28 Neutral Network ISP Content Provider? ISP ISP Content provider connects to cheapest ISP(s) Any such connection allows communication with all end-users Competition drives connection prices to marginal cost We normalize so that Content providers pay 0 for connection

29 Non Neutral Network Content Provider ISP All ISPs can charge the content provider Content provider forced to pay all ISPs that serve end users.

30 Two-Sided (Non-Neutral) Neutral) One-Sided (Neutral) Advertisers C Advertisers 1 C U 1 1 U 1 T 1 T 1 C M T N U N C M T N U N Which is better? Study Investment Incentives Model Overview usage ( clicks ) function of provider investments Provider revenue function of usage and regime (one- vs. two-sided) d) Content and transit providers play a game

31 Two-Sided Markets Large Literature Idea See Rochet and Tirole (2006) for overview Platform mediating two types of participants E.g. Videogame Console needs to attract end-users and game makers Novelty of our model Model Investment incentives to compare two regimes. Previous application to Net-Neutrality Neutrality issue Hogedorn (2006) conduits, service providers, content Study open access of conduits by to service providers

32 Neutral Case Single Provider Advertisers C 1 T 1 U 1 Invest: t 1 Set user price: p 1 Invest: c 1 Click rate: Advertisers Advertisers pay C 1 B 1 a Users pay T 1 C U 1 1 T 1 B 1 p 1

33 Non-Neutral Case Single Provider Advertisers C 1 T 1 U 1 Invest: t 1 Set user price: p 1 Content provider charge: q 1 Invest: c 1 Click rate: Advertisers Advertisers pay C 1 C 1 pays T 1 C 1 B 1 a B 1 q 1 T 1 Users pay T 1 B 1 p 1 U 1

34 Neutral Case Multi Provider Advertisers C 1 U T 1 1 C M T N Invest: t n Set user price: p n Invest: c m Click rate on Tn: U N Advertisers Value of Content T s Investment Across Internet n Spillover of Other Transit Investment Advertisers pay C m Users pay T n : C m Tn U n

35 Non-Neutral Case Multi Provider Advertisers C 1 U T 1 1 C M T N Invest: t n Set user price: p n Set Content price: q n U N Invest: c m Click rate on T n : Advertisers pay C m C m pays T n Users pay T n : Advertisers C m T U U n T n

36 Net Payoff to Providers Payoff to each Transit provider [Revenue] - α [investment] Payoff to each Content Provider [Revenue] [Payment to Transit] β [Investment]

37 Game Theoretic Analysis Backwards Induction. Content Provider Strategy Evaluate first order condition of partial derivative w.r.t. c m Find symmetric equilibrium where c m s m=1 M are the same Transit Provider Strategy Evaluate first order condition of partial derivatives w.r.t. t n, p n, q n Find Symmetric equilibrium

38 Non-Neutral Case

39 Neutral Case

40 Social Welfare Sum of transit, content, and user welfare Welfare = payoff for providers For users, find consumer surplus: clicks price

41 Neutral vs Non Neutral for each Provider Type Transit Provider Payoff Content Provider Payoff a/θ a/θ

42 Comparison

43 Comparison N= Number Transit providers Neutral Better Non-Neutral N Better T pays C Non-Neutral Better C pays T [advertising rate] : [end user price sensitivity] J. Musacchio, G. Schwartz, J. Walrand, Network Neutrality and Provider Investment Incentives, in submission (2007).

44 Comparison

45 Price charged by Transit Provider to Content t Provider (Non Neutral)

46 Castles Toll: q 1 Toll: q 2 Toll: q 3 Toll: q 4 Tolls collected are a product of toll rate and traffic rate, A castle sees any benefit of his toll increase, but the downside (the traffic decrease) is borne by all castles. Consequently, each castle tends to tax higher than would be optimum socially.

47 Conclusions Two competing effects Need to adjust revenue sharing between content and transit providers. Castles on the Rhine effect of transit providers charging higher than optimal tolls. Whether neutral or non-neutral is better depends on number of providers advertising rates vs. user price sensitivity For parameters that make non-neutral superior, both content and transit providers are better off!

48 References Rochet, J.-C. and J. Tirole (2006) Two-Sided Markets: A Progress Report, RAND Journal of Economics, 37(3): Hermalin, B. and M. Katz (2007), The Economics of Product-Line Restrictions With an Application to the Network Neutrality Debate, Competition Policy Center Hogendorn, C. (2007) Broadband Internet: net neutrality versus open access, International Economics and Economic Policy, 4:

Analytic Preliminaries for Social Acceptability of Legal Norms &

Analytic Preliminaries for Social Acceptability of Legal Norms & Analytic Preliminaries for Social Acceptability of John Asker February 7, 2013 Yale Law School Roadmap Build on case studies of environments where extra-legal norms are at least as important as formal

More information

CMSC 474, Introduction to Game Theory Analyzing Normal-Form Games

CMSC 474, Introduction to Game Theory Analyzing Normal-Form Games CMSC 474, Introduction to Game Theory Analyzing Normal-Form Games Mohammad T. Hajiaghayi University of Maryland Some Comments about Normal-Form Games Only two kinds of strategies in the normal-form game

More information

14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 7, Lecture 22

14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 7, Lecture 22 Monopoly. Principles of Microeconomics, Fall Chia-Hui Chen November, Lecture Monopoly Outline. Chap : Monopoly. Chap : Shift in Demand and Effect of Tax Monopoly The monopolist is the single supply-side

More information

Game theory (Sections )

Game theory (Sections ) Game theory (Sections 17.5-17.6) Game theory Game theory deals with systems of interacting agents where the outcome for an agent depends on the actions of all the other agents Applied in sociology, politics,

More information

Bidding for Sponsored Link Advertisements at Internet

Bidding for Sponsored Link Advertisements at Internet Bidding for Sponsored Link Advertisements at Internet Search Engines Benjamin Edelman Portions with Michael Ostrovsky and Michael Schwarz Industrial Organization Student Seminar September 2006 Project

More information

Price-Fixing and. Repeated Games. Collusion and cartels. Recent events. Collusion and cartels 2. Cartels. Recent cartel violations 2

Price-Fixing and. Repeated Games. Collusion and cartels. Recent events. Collusion and cartels 2. Cartels. Recent cartel violations 2 Collusion and cartels Price-Fixing and What is a cartel? attempt to enforce market discipline and reduce competition between a group of suppliers cartel members agree to coordinate their actions prices

More information

Collusion. Sotiris Georganas. February Sotiris Georganas () Collusion February / 31

Collusion. Sotiris Georganas. February Sotiris Georganas () Collusion February / 31 Collusion Sotiris Georganas February 2012 Sotiris Georganas () Collusion February 2012 1 / 31 Outline 1 Cartels 2 The incentive for cartel formation The scope for collusion in the Cournot model 3 Game

More information

Principles of Economics: Seminar 1 - Game Theory

Principles of Economics: Seminar 1 - Game Theory Principles of Economics: Seminar 1 - Game Theory July 18, 2017 Principles of Economics: Seminar 1 - Game Theory July 18, 2017 1 / 20 What is a game? Definition: A game is any situation involving two or

More information

Note on webpage about sequential ascending auctions

Note on webpage about sequential ascending auctions Econ 805 Advanced Micro Theory I Dan Quint Fall 2007 Lecture 20 Nov 13 2007 Second problem set due next Tuesday SCHEDULING STUDENT PRESENTATIONS Note on webpage about sequential ascending auctions Everything

More information

Managerial Economics & Business Strategy. Game Theory: Inside Oligopoly

Managerial Economics & Business Strategy. Game Theory: Inside Oligopoly Managerial Economics & Business Strategy Chapter 10 Game Theory: Inside Oligopoly Revised 2/12 by DF McGraw-Hill/Irwin Copyright Copyright 2006 by The 2006 McGraw-Hill by The McGraw-Hill Companies, Inc.

More information

Chapter 13 Outline. Challenge: Intel and AMD s Advertising Strategies. An Overview of Game Theory. An Overview of Game Theory

Chapter 13 Outline. Challenge: Intel and AMD s Advertising Strategies. An Overview of Game Theory. An Overview of Game Theory Chapter 13 Game Theory A camper awakens to the growl of a hungry bear and sees his friend putting on a pair of running shoes. You can t outrun a bear, scoffs the camper. His friend coolly replies, I don

More information

Price of anarchy in auctions & the smoothness framework. Faidra Monachou Algorithmic Game Theory 2016 CoReLab, NTUA

Price of anarchy in auctions & the smoothness framework. Faidra Monachou Algorithmic Game Theory 2016 CoReLab, NTUA Price of anarchy in auctions & the smoothness framework Faidra Monachou Algorithmic Game Theory 2016 CoReLab, NTUA Introduction: The price of anarchy in auctions COMPLETE INFORMATION GAMES Example: Chicken

More information

Preface. Chapter 1 Basic Tools Used in Understanding Microeconomics. 1.1 Economic Models

Preface. Chapter 1 Basic Tools Used in Understanding Microeconomics. 1.1 Economic Models Preface Chapter 1 Basic Tools Used in Understanding Microeconomics 1.1 Economic Models 1.1.1 Positive and Normative Analysis 1.1.2 The Market Economy Model 1.1.3 Types of Economic Problems 1.2 Mathematics

More information

Microeconomics LESSON 6 ACTIVITY 40

Microeconomics LESSON 6 ACTIVITY 40 Microeconomics LESSON 6 ACTIVITY 40 Monopolistic Competition Figure 40.1 Monopolistically Competitive Firm in the Short Run MC COSTS/REVENUE (DOLLARS) E D C B A F H K G ATC D 0 MR L M QUANTITY 1. Use Figure

More information

Do not open this exam until told to do so. Solution

Do not open this exam until told to do so. Solution Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Fall 003 Final (Version): Intermediate Microeconomics (ECON30) Solution Final (Version

More information

Microeconomics LESSON 6 ACTIVITY 41

Microeconomics LESSON 6 ACTIVITY 41 Microeconomics LESSON 6 ACTIVITY 41 Game Theory Strategic thinking is the art of outdoing an adversary, knowing that the adversary is trying to do the same to you. Dixit and Nalebuff Game theory is used

More information

Analyze different types of non zero sum games. Hawk vs. Dove game. Advertising problem. Problem of companies polluting the environment.

Analyze different types of non zero sum games. Hawk vs. Dove game. Advertising problem. Problem of companies polluting the environment. Unit 3 GME THEORY Lesson 31 Learning Objective: nalyze different types of non zero sum games Hawk vs. game. dvertising problem. Problem of companies polluting the environment. Rationalizability or Iterative

More information

Universitat Autònoma de Barcelona Department of Applied Economics

Universitat Autònoma de Barcelona Department of Applied Economics Universitat Autònoma de Barcelona Department of Applied Economics Annual Report Endogenous R&D investment when learning and technological distance affects absorption capacity Author: Jorge Luis Paz Panizo

More information

5 Market Games For Teaching Economics

5 Market Games For Teaching Economics 5 Market Games For Teaching Economics Progression 5 Market Games from website economics-games.com To be played separately or as a sequence: Market Game 1: Sunk costs, monopoly, and introduction to the

More information

Chapter 13. Game Theory. Gaming and Strategic Decisions. Noncooperative v. Cooperative Games

Chapter 13. Game Theory. Gaming and Strategic Decisions. Noncooperative v. Cooperative Games Chapter 13 Game Theory Gaming and Strategic Decisions Game theory tries to determine optimal strategy for each player Strategy is a rule or plan of action for playing the game Optimal strategy for a player

More information

STRATEGY. Here we suppose a game with one other player. The other player could be another firm, another person, or the industry.

STRATEGY. Here we suppose a game with one other player. The other player could be another firm, another person, or the industry. STRATEGY Strategy deals with managerial decisions when other firms (or persons) change their behavior in response to your behavior. For example, in the last section we learned that demand for a firm s

More information

FOUR MARKET MODELS. Characteristics of Oligopolies:

FOUR MARKET MODELS. Characteristics of Oligopolies: FOUR MARKET MODELS Perfect Competition Monopolistic Competition Oligopoly Pure Monopoly Characteristics of Oligopolies: A Few Large Producers (Less than 10) Identical or Differentiated Products High Barriers

More information

Chapter 9: Static Games and Cournot Competition

Chapter 9: Static Games and Cournot Competition Chapter 9: Static Games and Cournot Competition Learning Objectives: Students should learn to:. The student will understand the ideas of strategic interdependence and reasoning strategically and be able

More information

Competition and Fraud in Online Advertising Markets

Competition and Fraud in Online Advertising Markets Competition and Fraud in Online Advertising Markets Bob Mungamuru 1 and Stephen Weis 2 1 Stanford University, Stanford, CA, USA 94305 2 Google Inc., Mountain View, CA, USA 94043 Abstract. An economic model

More information

Best-response functions, best-response curves. Strategic substitutes, strategic complements. Quantity competition, price competition

Best-response functions, best-response curves. Strategic substitutes, strategic complements. Quantity competition, price competition Strategic Competition: An overview The economics of industry studying activities within an industry. Basic concepts from game theory Competition in the short run Best-response functions, best-response

More information

Efficiency and Robustness of Binary Online Feedback Mechanisms in Trading Environments with Moral Hazard

Efficiency and Robustness of Binary Online Feedback Mechanisms in Trading Environments with Moral Hazard Efficiency and Robustness of Binary Online Feedback Mechanisms in Trading Environments with Moral Hazard Chris Dellarocas MIT Sloan School of Management dell@mit.edu Introduction and Motivation Outline

More information

Oligopolies Part III

Oligopolies Part III Oligopolies Part III It's called an oligopoly. It's not a regular market. It's a market in which they control the prices and they've been doing it for years. Richard Miller The Prisoner s Dilemma Consider

More information

Umbrella Branding Can Leverage Reputation, but only with Market Power. May 19, Eric B. Rasmusen

Umbrella Branding Can Leverage Reputation, but only with Market Power. May 19, Eric B. Rasmusen Umbrella Branding Can Leverage Reputation, but only with Market Power May 19, 2012 Eric B. Rasmusen Dan R. and Catherine M. Dalton Professor, Department of Business Economics and Public Policy, Kelley

More information

Oligopoly is a market structure in which Natural or legal barriers prevent the entry of new firms. A small number of firms compete.

Oligopoly is a market structure in which Natural or legal barriers prevent the entry of new firms. A small number of firms compete. CHAPTER 15: OLIGOPOLY What Is Oligopoly? Oligopoly is a market structure in which Natural or legal barriers prevent the entry of new firms. A small number of firms compete. Barriers to Entry Either natural

More information

EC493f Review Sheet 1

EC493f Review Sheet 1 Econ 493f Law and Economics Spring 2017 1 Identify and/or Define: a. Codex of Hammurabi l. Dominant Strategy b. Marginal Cost m. Nash Equilibrium c. Net Benefit n. Optimal Crime Rate d. Expected Penalty

More information

#1: Monopolistic Competition

#1: Monopolistic Competition Answers: #1: Monopolistic Competition MC-1. d. All of the terms describe economically breaking even MC-2. c. Economic profits will attract competition MC-3. d. Economically breaking even means you just

More information

Game Theory. 7 Repeated Games

Game Theory. 7 Repeated Games Game Theory 7 Repeated Games REPEATED GAMES Review of lecture six Definitions of imperfect information Graphical convention for dynamic games Information sets General failure of backwards induction with

More information

Journal of Industrial Organization Education. Third-Degree Price Discrimination

Journal of Industrial Organization Education. Third-Degree Price Discrimination An Article Submitted to Journal of Industrial Organization Education Manuscript 1030 Third-Degree Price Discrimination Qihong Liu Konstantinos Serfes University of Oklahoma, qliu@ou.edu Drexel University,

More information

Course Outline. Business Undeclared School of Business & Economics ECON Applied Microeconomics for Sustainable Management

Course Outline. Business Undeclared School of Business & Economics ECON Applied Microeconomics for Sustainable Management Course Outline Calendar Description Business Undeclared School of Business & Economics ECON 6020-3.00 Applied Microeconomics for Sustainable Management Students examine more advanced microeconomic tools

More information

Oligopoly. Quantity Price(per year) 0 $120 2,000 $100 4,000 $80 6,000 $60 8,000 $40 10,000 $20 12,000 $0

Oligopoly. Quantity Price(per year) 0 $120 2,000 $100 4,000 $80 6,000 $60 8,000 $40 10,000 $20 12,000 $0 Oligopoly 1. Markets with only a few sellers, each offering a product similar or identical to the others, are typically referred to as a. monopoly markets. b. perfectly competitive markets. c. monopolistically

More information

MANAGERIAL ECONOMICS THEORY, APPLICATIONS, AND CASES EIGHTH EDITION. W.Bruce Allen The Wharton School University of Pennsylvania

MANAGERIAL ECONOMICS THEORY, APPLICATIONS, AND CASES EIGHTH EDITION. W.Bruce Allen The Wharton School University of Pennsylvania MANAGERIAL ECONOMICS THEORY, APPLICATIONS, AND CASES EIGHTH EDITION W.Bruce Allen The Wharton School University of Pennsylvania Neil A. Doherty The Wharton School University of Pennsylvania Keith Weigelt

More information

Incentives in Crowdsourcing: A Game-theoretic Approach

Incentives in Crowdsourcing: A Game-theoretic Approach Incentives in Crowdsourcing: A Game-theoretic Approach ARPITA GHOSH Cornell University NIPS 2013 Workshop on Crowdsourcing: Theory, Algorithms, and Applications Incentives in Crowdsourcing: A Game-theoretic

More information

Oligopoly Pricing. EC 202 Lecture IV. Francesco Nava. January London School of Economics. Nava (LSE) EC 202 Lecture IV Jan / 13

Oligopoly Pricing. EC 202 Lecture IV. Francesco Nava. January London School of Economics. Nava (LSE) EC 202 Lecture IV Jan / 13 Oligopoly Pricing EC 202 Lecture IV Francesco Nava London School of Economics January 2011 Nava (LSE) EC 202 Lecture IV Jan 2011 1 / 13 Summary The models of competition presented in MT explored the consequences

More information

Advance Selling, Competition, and Brand Substitutability

Advance Selling, Competition, and Brand Substitutability Advance Selling, Competition, and Brand Substitutability Oksana Loginova October 27, 2016 Abstract This paper studies the impact of competition on the benefits of advance selling. I construct a two-period

More information

Chapter 15 Oligopoly

Chapter 15 Oligopoly Goldwasser AP Microeconomics Chapter 15 Oligopoly BEFORE YOU READ THE CHAPTER Summary This chapter explores oligopoly, a market structure characterized by a few firms producing a product that mayor may

More information

Industrial Organization

Industrial Organization Industrial Organization Markets and Strategies 2nd edition Paul Belleflamme Université CatholiquedeLouvain Martin Peitz University of Mannheim University Printing House, Cambridge CB2 8BS, United Kingdom

More information

Third degree price discrimination. Welfare Analysis

Third degree price discrimination. Welfare Analysis Third degree price discrimination Welfare Analysis Third-degree rice discrimination and welfare Does third-degree price discrimination reduce welfare? not the same as being fair relates solely to efficiency

More information

Bargaining and Power in Networks

Bargaining and Power in Networks Chapter 12 Bargaining and Power in Networks In our analysis of economic transactions on networks, particularly the model in Chapter 11, we considered how a node s position in a network affects its power

More information

Tilburg University. The repeated lake game Brock, W.A.; de Zeeuw, Aart. Published in: Economics Letters. Publication date: Link to publication

Tilburg University. The repeated lake game Brock, W.A.; de Zeeuw, Aart. Published in: Economics Letters. Publication date: Link to publication Tilburg University The repeated lake game Brock, W.A.; de Zeeuw, Aart Published in: Economics Letters Publication date: 2002 Link to publication Citation for published version (APA): Brock, W. A., & de

More information

Edexcel (A) Economics A-level

Edexcel (A) Economics A-level Edexcel (A) Economics A-level Theme 3: Business Behaviour & the Labour Market 3.4 Market Structures 3.4.4 Oligopoly Notes Characteristics of an oligopoly: High barriers to entry and exit There are high

More information

BoR (15) 195. BEREC Report on. Oligopoly analysis and regulation

BoR (15) 195. BEREC Report on. Oligopoly analysis and regulation BEREC Report on Oligopoly analysis and regulation December 2015 Contents 1 Executive summary and main findings... 5 2 Contents of the report... 7 3 Context and objectives of the report... 8 4 Oligopoly

More information

Countervailing Power and Product Diversity

Countervailing Power and Product Diversity Countervailing Power and Product Diversity by Zhiqi Chen Carleton University Work in Progress December 6, 2003 Abstract To analyse the effects of countervailing power on product variety, I construct a

More information

TWO-SIDED PLATFORMS AND ANALYSIS OF SINGLE FIRM CONDUCT

TWO-SIDED PLATFORMS AND ANALYSIS OF SINGLE FIRM CONDUCT TWO-SIDED PLATFORMS AND ANALYSIS OF SINGLE FIRM CONDUCT David S. Evans September 2006 Chairman, esapience, LLC, Cambridge, MA; Managing Director, Global Competition Policy Practice, LECG, LLC, Cambridge,

More information

Optimal Brand Umbrella Size

Optimal Brand Umbrella Size Optimal Brand Umbrella Size Luís M B Cabral New York University April 2007 Abstract In a framework or repeated-purchase experience goods with seller s moral hazard and imperfect monitoring, umbrella branding

More information

Economics of Managerial Decision Making (MGEC 611) SAMPLE EXAM

Economics of Managerial Decision Making (MGEC 611) SAMPLE EXAM Economics of Managerial Decision Making (MGEC 611) SAMPLE EXAM QUESTION 1 Short Questions. This part consists of three short, stand-alone questions of lower math intensity. Please provide an answer or

More information

The Retailers Choices of Profit Strategies in a Cournot Duopoly: Relative Profit and Pure Profit

The Retailers Choices of Profit Strategies in a Cournot Duopoly: Relative Profit and Pure Profit Modern Economy, 07, 8, 99-0 http://www.scirp.org/journal/me ISSN Online: 5-76 ISSN Print: 5-745 The Retailers Choices of Profit Strategies in a Cournot Duopoly: Relative Profit and Pure Profit Feifei Zheng

More information

BoR (15)74. BEREC Report on Oligopoly analysis and regulation

BoR (15)74. BEREC Report on Oligopoly analysis and regulation BoR (15)74 BEREC Report on Oligopoly analysis and regulation June 2015 Contents 1 Executive summary and main findings... 5 2 Contents of the report... 7 3 Context and objectives of the report... 8 4 Oligopoly

More information

Noncooperative Game Theory For Industrial Organization: An Introduction and Overview. by Drew Fudenberg and Jean Tirole Number 445 April 1987

Noncooperative Game Theory For Industrial Organization: An Introduction and Overview. by Drew Fudenberg and Jean Tirole Number 445 April 1987 Noncooperative Game Theory For Industrial Organization: An Introduction and Overview by Drew Fudenberg and Jean Tirole Number 445 April 1987 Digitized by the Internet Archive in 2011 with funding from

More information

Lecture 21: Strategic Interaction and Game Theory

Lecture 21: Strategic Interaction and Game Theory Lecture 2: Strategic Interaction and Game Theory EC DD & EE / Manove Strategic Interaction p What types of firms are most likely to engage in costly rent-seeking? EC DD & EE / Manove Monopoly>Rent Seeking

More information

Impact of Competition Between ISPs on the Net Neutrality Debate

Impact of Competition Between ISPs on the Net Neutrality Debate IEEE TRANSACTIONS ON NETWORK AND SERVICE MANAGEMENT 1 Impact of Competition Between ISPs on the Net Neutrality Debate Pierre Coucheney, Patrick Maillé, Bruno Tuffin Abstract Network neutrality is the topic

More information

Integrating Production Costs in Channel Decisions

Integrating Production Costs in Channel Decisions Journal of Retailing 87 1, 2011) 101 110 Integrating Production Costs in Channel Decisions Ruhai Wu a,1, Suman Basuroy b,, Srinath Beldona c,2 a DeGroote School of Business, McMaster University, 1280 Main

More information

1. Fill in the missing blanks ( XXXXXXXXXXX means that there is nothing to fill in this spot):

1. Fill in the missing blanks ( XXXXXXXXXXX means that there is nothing to fill in this spot): 1. Fill in the missing blanks ( XXXXXXXXXXX means that there is nothing to fill in this spot): Quantity Total utility Marginal utility 0 0 XXXXXXXXXXX XXXXXXXXXXX XXXXXXXXXXX 200 0 = 200 1 200 XXXXXXXXXXX

More information

MICROECONOMICS. London School of Economics. University of Western Ontario. Prentice Hall FINANCIAL TIMES

MICROECONOMICS. London School of Economics. University of Western Ontario. Prentice Hall FINANCIAL TIMES .&*,- *>"> MICROECONOMICS Saul Estrin London School of Economics David Laidler University of Western Ontario Michael Dietrich University of Sheffield Prentice Hall FINANCIAL TIMES An imprint of Pearson

More information

The Economics of E-commerce and Technology. Reputation

The Economics of E-commerce and Technology. Reputation The Economics of E-commerce and Technology Reputation 1 Reputation Reputations are essential with experience goods Where experience good after buying Reputation performs two functions Allow people to learn

More information

MGMT 784: Managerial Economics and Game Theory, Q1, 2017

MGMT 784: Managerial Economics and Game Theory, Q1, 2017 1 Wharton School Professor Louis Thomas 2111 SH-Dietrich Hall Office hours: Thomas@wharton.upenn.edu MGMT 784: Managerial Economics and Game Theory, Q1, 2017 MGMT 784 is a short elective course in Game

More information

1. INTRODUCTION IS IT POSSIBLE TO MOVE THE COPPER MARKET? MATTI LISKI AND JUAN-PABLO MONTERO *

1. INTRODUCTION IS IT POSSIBLE TO MOVE THE COPPER MARKET? MATTI LISKI AND JUAN-PABLO MONTERO * Cuadernos de Economía, Año 40, Nº 121, pp. 559-565 (diciembre 2003) IS IT POSSIBLE TO MOVE THE COPPER MARKET? MATTI LISKI AND JUAN-PABLO MONTERO * 1. INTRODUCTION In recent years, the question whether

More information

Network Externalities, Technological Progress, and the Competition of Market Contracts

Network Externalities, Technological Progress, and the Competition of Market Contracts Network Externalities, Technological Progress, and the Competition of Market Contracts by Marcel Thum May 1993 Abstract Network externalities are used to describe the fact that many modern products become

More information

PROGRAMME: Interdepartmental Programme of Postgraduate Studies in Business Administration (M.B.A.)

PROGRAMME: Interdepartmental Programme of Postgraduate Studies in Business Administration (M.B.A.) PROGRAMME: Interdepartmental Programme of Postgraduate Studies in Business Administration (M.B.A.) Compulsory Course: Principles of Economic Theory and Policy Semester: 1st Instructors: Velentzas Konstantinos,

More information

Industrial. Organization. Markets and Strategies. 2nd edition. Paul Belleflamme Universite Catholique de Louvain. Martin Peitz University of Mannheim

Industrial. Organization. Markets and Strategies. 2nd edition. Paul Belleflamme Universite Catholique de Louvain. Martin Peitz University of Mannheim Industrial Organization Markets and Strategies 2nd edition Paul Belleflamme Universite Catholique de Louvain Martin Peitz University of Mannheim CAMBRIDGE UNIVERSITY PRESS Contents List offigures xiii

More information

Games and Strategic Behavior. Chapter 9. McGraw-Hill/Irwin. Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Games and Strategic Behavior. Chapter 9. McGraw-Hill/Irwin. Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Games and Strategic Behavior Chapter 9 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives 1. List the three basic elements of a game. Recognize

More information

Common-Pool Resources (Ch 34) and Public Goods (Ch 36)

Common-Pool Resources (Ch 34) and Public Goods (Ch 36) Common-Pool Resources (Ch 34) and (Ch 36) Final Exam Details 20 hours of OH between now and final Review Session: Saturday, 3/12, 4-6pm, NH 1006 Final exam: Tuesday, March 15, 12-3pm, here Format: 12 15

More information

Transit versus (Paid) Peering: Interconnection and Competition in the Internet Backbone Market

Transit versus (Paid) Peering: Interconnection and Competition in the Internet Backbone Market Transit versus (Paid) Peering: Interconnection and Competition in the Internet Backbone Market Eric Jahn and Jens Prüfer Goethe University Frankfurt 9th June 2005 Abstract We examine the strategic interaction

More information

Network Neutrality on the Internet

Network Neutrality on the Internet Network Neutrality on the Internet Nicholas Economides Stern School of Business, New York University http://www.stern.nyu.edu/networks/ NET Institute http://www.netinst.org/ mailto:economides@stern.nyu.edu

More information

Econ Economics of Public Sector HW #1 Suggested Solutions.

Econ Economics of Public Sector HW #1 Suggested Solutions. Econ 411-1 Economics of Public Sector HW #1 Suggested Solutions. by Anna Rubinchik-Pessach October 7, 1 Problem 1: Chapter 5, q.4 Cash-for-Clunkers Program The goal of the EPA policy is to limit emission

More information

Matching: The Theory. Muriel Niederle Stanford and NBER. October 5, 2011

Matching: The Theory. Muriel Niederle Stanford and NBER. October 5, 2011 Matching: The Theory Muriel Niederle Stanford and NBER October 5, 2011 NRMP match variations: Couples: Submit rank oders over pairs of programs, and must be matched to two positions Applicants who match

More information

CeDEx Discussion Paper Series ISSN Discussion Paper No

CeDEx Discussion Paper Series ISSN Discussion Paper No Discussion Paper No. 2014-04 Daniele Nosenzo, Theo Offerman, Martin Sefton & Ailko van der Veen April 2014 Discretionary Sanctions and Rewards in the Repeated Inspection Game CeDEx Discussion Paper Series

More information

AQA Economics A-level

AQA Economics A-level AQA Economics A-level Microeconomics Topic 5: Perfect Competition, Imperfectly Competitive Markets and Monopoly 5.5 Oligopoly Notes Characteristics of an oligopoly: High barriers to entry and exit There

More information

Game Theory - final project

Game Theory - final project Game Theory - final project The Price of Anarchy in Network Creation Games Is (Mostly) Constant Mat uˇs Mihal ak and Jan Christoph Schlegel Submitter name: Itzik Malkiel ID: 200481273 The Game: When I

More information

Tutor2u Economics Essay Plans Summer 2002

Tutor2u Economics Essay Plans Summer 2002 Microeconomics Revision Essay (7) Perfect Competition and Monopoly (a) Explain why perfect competition might be expected to result in an allocation of resources which is both productively and allocatively

More information

Games with Time Inconsistent Players

Games with Time Inconsistent Players Games with Time Inconsistent Players Yianis Sarafidis February 22, 2006 PRELIMINARY DRAFT Comments are more than welcome Abstract We embed time inconsistent agents (players) in non-cooperative games. To

More information

Exam #2 (100 Points Total) Answer Key

Exam #2 (100 Points Total) Answer Key Exam #2 (100 Points Total) Answer Key 1. A Pareto efficient outcome may not be good, but a Pareto inefficient outcome is in some meaningful sense bad. (a) (5 points) Give an example or otherwise explain,

More information

Strategic Ignorance in the Second-Price Auction

Strategic Ignorance in the Second-Price Auction Strategic Ignorance in the Second-Price Auction David McAdams September 23, 20 Abstract Suppose bidders may publicly choose not to learn their values prior to a second-price auction with costly bidding.

More information

ECMC02H Intermediate Microeconomics - Topics in Price Theory

ECMC02H Intermediate Microeconomics - Topics in Price Theory 1 ECMC02H Intermediate Microeconomics - Topics in Price Theory Answers to the Term Test June 23, 2010 Version A of the test Your name (Print clearly and underline your last name) Your student number 1.

More information

Volume 30, Issue 3. Specialization through Cross-licensing in a Multi-product Stackelberg Duopoly

Volume 30, Issue 3. Specialization through Cross-licensing in a Multi-product Stackelberg Duopoly Volume 30, Issue 3 Specialization through Cross-licensing in a Multi-product Stackelberg Duopoly Luigi Filippini Università Cattolica, Milano Abstract We argue that cross-licensing is a device to establish

More information

Incentive-Compatible Escrow Mechanisms

Incentive-Compatible Escrow Mechanisms Incentive-Compatible Escrow Mechanisms Jens Witkowski Department of Computer Sence Albert-Ludwigs-Universität Freiburg, Germany witkowsk@informatik.uni-freiburg.de Sven Seuken School of Eng. & Applied

More information

Microeconomics for Planners October 25, Answers to Problem Set 6

Microeconomics for Planners October 25, Answers to Problem Set 6 DUSP 11.210 Frank Levy Microeconomics for Planners October 25, 2010 Answers to Problem Set 6 1) In the early 1990s, there was a sales boomlet in an exercise device called an abs machine, a small frame

More information

Reverse Pricing and Revenue Sharing in a Vertical Market

Reverse Pricing and Revenue Sharing in a Vertical Market Reverse Pricing and Revenue Sharing in a Vertical Market Qihong Liu Jie Shuai January 18, 2014 Abstract Advancing in information technology has empowered firms with unprecedented flexibility when interacting

More information

! lecture 7:! competition and collusion!!

! lecture 7:! competition and collusion!! ! lecture 7:! competition and collusion!! the story so far Natural monopoly: Definitions (Ideal) Pricing solutions Regulation in practice Regulation under asymmetric information Competition policy: Introduction

More information

College Record: 59.7% 4 year school, 13.1% 2 year school, 9.9% trade school

College Record: 59.7% 4 year school, 13.1% 2 year school, 9.9% trade school Microeconomics SYLLABUS Jason Farone Blackhawk High School Beaver Falls, PA School Profile School Location and Environment: Blackhawk High School is a public school in Beaver Falls, PA, located 50 miles

More information

Speed and Quality of Collective Decision Making: Incentives for Information Provision

Speed and Quality of Collective Decision Making: Incentives for Information Provision Speed and Quality of Collective Decision Making: Incentives for Information Provision Hans Peter GRÜNER University of Mannheim and CEPR, London Elisabeth SCHULTE University of Mannheim June 2009 Abstract

More information

Competition between wireless service providers sharing a radio resource

Competition between wireless service providers sharing a radio resource Author manuscript, published in "NETWORKING 2012-11th IFIP Networking Conference, Prague : Czech Republic (2012)" Competition between wireless service providers sharing a radio resource Patrick Maillé

More information

Bill-and-Keep vs. Cost-Based Access Pricing Revisited

Bill-and-Keep vs. Cost-Based Access Pricing Revisited Bill-and-Keep vs. Cost-Based Access Pricing Revisited Ulrich Berger Vienna University of Economics Abstract We study network competition with two-part tariffs and terminationbased price discrimination

More information

MANAGERIAL ECONOMICS SIXTH EDITION

MANAGERIAL ECONOMICS SIXTH EDITION MANAGERIAL ECONOMICS SIXTH EDITION William F. Samuelson Boston University Stephen G. Marks Boston University WILEY JOHN WILEY & SONS, INC. Contents CHAPTER 1 Introduction to Economic Decision Making 1

More information

A study of cartel stability: the Joint Executive Committee, Paper by: Robert H. Porter

A study of cartel stability: the Joint Executive Committee, Paper by: Robert H. Porter A study of cartel stability: the Joint Executive Committee, 1880-1886 Paper by: Robert H. Porter Joint Executive Committee Cartels can increase profits by restricting output from competitive levels. However,

More information

Cooperation Without Enforcement? A comparative analysis of litigation and online reputation as quality assurance mechanisms

Cooperation Without Enforcement? A comparative analysis of litigation and online reputation as quality assurance mechanisms Cooperation Without Enforcement? A comparative analysis of litigation and online reputation as quality assurance mechanisms Yannis Bakos * Stern School of Business New York University New York, NY 00 Chrysanthos

More information

Wallingford Public Schools - HIGH SCHOOL COURSE OUTLINE

Wallingford Public Schools - HIGH SCHOOL COURSE OUTLINE Wallingford Public Schools - HIGH SCHOOL COURSE OUTLINE Course Title: Advanced Placement Economics Course Number: 3552 Department: Social Studies Grade(s): 11-12 Level(s): Advanced Placement Credit: 1

More information

[ECON10004: INTRODUCTORY MICROECONOMICS: LECTURE REVISION NOTES]

[ECON10004: INTRODUCTORY MICROECONOMICS: LECTURE REVISION NOTES] Lecture Two: Cost of an action: Opportunity cost: value of resources if they were used in their next best alternative Sunk cost: resources already used before making the choice about an action, not included

More information

SUNK COSTS, CONTESTABILITY, AND THE LATENT CONTRACT MARKET. Chris Stefanadis* Current Version: March 1999 First Version: November 1998

SUNK COSTS, CONTESTABILITY, AND THE LATENT CONTRACT MARKET. Chris Stefanadis* Current Version: March 1999 First Version: November 1998 SUNK COSTS, CONTESTABILITY, AND THE LATENT CONTRACT MARKET by Chris Stefanadis* Current Version: March 1999 First Version: November 1998 ABSTRACT: The idea that an industry with sunk costs may be contestable

More information

Shelf Space Fees and Inter-Brand Competition

Shelf Space Fees and Inter-Brand Competition No. E00800 008- Shelf Space Fees and Inter-Brand Competition Hao Wang * China Center for Economic Research (CCER) National School of Development Peking University, China NO. E00800 December, 008 * Correspondence

More information

Lecture 2: Market Structure I (Perfect Competition and Monopoly)

Lecture 2: Market Structure I (Perfect Competition and Monopoly) Lecture 2: Market Structure I (Perfect Competition and Monopoly) EC 105. Industrial Organization Matt Shum HSS, California Institute of Technology October 1, 2012 EC 105. Industrial Organization ( Matt

More information

PRICE OF ANARCHY: QUANTIFYING THE INEFFICIENCY OF EQUILIBRIA. Zongxu Mu

PRICE OF ANARCHY: QUANTIFYING THE INEFFICIENCY OF EQUILIBRIA. Zongxu Mu PRICE OF ANARCHY: QUANTIFYING THE INEFFICIENCY OF EQUILIBRIA Zongxu Mu The Invisible Hand Equilibria and Efficiency Central to free market economics The Wealth of Nations (Smith, 1776) led by an invisible

More information

Strategic Behavior in Day-Ahead and Real-Time Markets for Electricity: Offer Cost or Payment Cost Minimization?

Strategic Behavior in Day-Ahead and Real-Time Markets for Electricity: Offer Cost or Payment Cost Minimization? University of Connecticut DigitalCommons@UConn Economics Working Papers Department of Economics October 2005 Strategic Behavior in Day-Ahead and Real-Time Markets for Electricity: Offer Cost or Payment

More information

ECON 230-D2-002 Version 2. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

ECON 230-D2-002 Version 2. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. ECON 230-D2-002 Version 2 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The two largest auto manufacturers, Toyota and GM, have experimented

More information

Vertical Integration and Distance to Frontier

Vertical Integration and Distance to Frontier Vertical Integration and Distance to Frontier The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters. Citation Published Version Accessed

More information

Sponsored Search Auctions: An Overview of Research with emphasis on Game Theoretic Aspects

Sponsored Search Auctions: An Overview of Research with emphasis on Game Theoretic Aspects Sponsored Search Auctions: An Overview of Research with emphasis on Game Theoretic Aspects Patrick Maillé Evangelos Markakis Maurizio Naldi George D. Stamoulis Bruno Tuffin July 26, 2011 Abstract We provide

More information