1 Session 16: Wrap up

Transcription

1 Page 1 1 Session 16: Wrap up 1. Strategic commitment (from Session 15). 2. Entry as a congestion game. 3. Wrap up. 2 An entry deterrance game Part of Exercise 15.1 The figure below illustrates the following strategic situation involving, which currently has a monopoly in the Discman, and JVC, which may enter the market. JVC Enter Stay out ( 5, -2 ) ( 6, 6 ) ( 12, 0 ) ( 8, 0 )

2 Page 2 3 Suppose is making plans to build a new plant Large plant Small plant JVC JVC Enter Stay out Enter Stay out ( 4, -2 ) ( 3, 6 ) ( 11, 0 ) ( 5, 0 ) ( 5, -2 ) ( 6, 6 ) ( 12, 0 ) ( 8, 0 ) 4 Pricing game from Session 12 Firm A Med Firm B Med

3 Page 3 5 Suppose that Firm B can commit to its price first Firm B Med Firm A (24,23) (28,31) Firm A (34,42) Firm A Med Med Med ( 19, 20 ) ( 24, 23 ) (30,15) ( 18, 25 ) (28,31) ( 40, 27 ) (10,33) ( 22, 38 ) ( 34, 42 ) 6 Summary: What are Stackelberg games? From these ingredients: twoplayers:1and2 player 1 chooses action A 1 and player 2 chooses action A 2 We can have three different strategic situations, depending on the timing: Simultaneous moves Sequential game in which player 1 moves first Sequential game in which player 2 moves first Such sequential games are called Stackelberg games. Player who moves first is the leader; other player is the follower.

4 Page 4 7 Summary: What about Stackelberg games? They let us see how timing and strategic commmitment matter. Who is behaving differently in Stackelberg vs. Nash? Follower? Leader? 8 Preemptive investments Your firm is first to develop the next generation memory chip. You thus will be the first firm to install capacity. What are you thinking?

5 Page 5 9 Wrap up on strategic commitment When you have the chance to commit, think about: 1. In what way you want to influence the other players actions. 2. How you can achieve this. 10 Session 16: Wrap up 1. Strategic commitment (from Session 15). 2. Entry as a congestion game. 3. Wrap up.

6 Page 6 11 Congestion games What do these situations have in common? 1. Entering a market. 2. Going to study at the INSEAD library. 3. Entering a random draw for free tickets to a concert. 4. Deciding whether to focus on the finance job market. 12 Congestion games simple version Simplification: How many not who. Each player cares about how many other players are in, but not on their identities.

7 Page 7 13 Example Value of being in, excluding entry cost 14 Session 16: Wrap up 1. Strategic commitment (from Session 15). 2. Entry as a congestion game. 3. Wrap up.

8 Page 8 15 What is this course about? Consumers Firms Markets Prices Quantities Our focus is on Firms. And the topics differ according to how we treat firms. 16 Main structure Firms are price-takers (Perfect competition) Firms have market power (Imperfect competition) (Sessions 1 6) (Firms decisions & equilibrium) Firms decisions Equilibrium (Sessions 7 11) (Sessions 12 15) Ineachcase:fixedfirmsinthemarket,thenentry/exit

9 Page 9 17 Imperfect competition Perfect competition Fixed firms in market Entry &exit Firms decisions Equilibrium Firms decisions Equilibrium MC = MR = P s i (P) s(p) = d(p) V Π > FC? P > AC u? Each active firm has economic profit 0. No potential entrant could make economic profit > 0 by entering. 18 Perfect competition Imperfect competition Fixed firms in market Entry &exit Firms decisions Equilibrium Firms decisions Equilibrium MC = MR P, Q Nash eqm. V Π > FC? Each active firm has economic profit 0. No potential entrant could make economic profit > 0 by entering.

10 Page More economics by economists Macroeconomics in Global Economy (P3 core) Interest rates, exchange rates, employment, Advanced Game Theory (P4) Applied, but for those who find rigorous modeling useful. Economics and Management of Developing Countries (P4 elective) Title says it all. Business and Public Policy (P4 mini) Trade, globalization, environment, labor markets, 20 More microeconomics-related courses Various finance courses Including Corporate Financial Policy (P2 core) Pricing Strategies and Tactics More pricing! (P5 elective) Dynamic Pricing and Revenue Management (P5 elective) Pricing and screening, plus the complications of stochastic demand Industry and Competitive Analysis (P4 & P5 elective) Much more applied but similar frameworks as in P&M. Negotations (elective) Incomplete information, behavioral biases, commitment problems