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Introduction to Game Theory in Business and Economics
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Description: Game theory is the study of strategic behavior in situations in which the decision makers are aware of the interdependence of their actions. This innovative textbook introduces students to the most basic principles of game theory--move and countermove--with an emphasis on real-world business and economic applications. Most of the material can be readily understood by students with a background in principles of economics and business mathematics.
Demonstration Problems in each chapter are designed to enhance the student's understanding of the concepts presented in the text. Many chapters include non-technical Applications designed to further the student's intuitive understanding of strategic behavior. Case studies help underscore the usefulness of game theory for analyzing real-world situations. Each chapter concludes with a Review and Questions and Exercises. An online Instructor's Manual with test bank is available to professors who adopt the text.
Selected Contents:
List of Figures and Tables
Acknowledgments
A Note to Students and Instructors
1. Introduction to Game Theory
Introduction
A Short History of Game Theory
Strategic Behavior
Case Study 1 1: Glaxo and Zantac
What is Game Theory?
The Prisoner's Dilemma
Shortcut for Finding Pure Strategy Nash Equilibria
Chapter Review
Chapter Questions
Chapter Exercises
Appendix 1A: Mathematics Review
2. Noncooperative, One-time, Static Games with Complete Information
Introduction
Strictly-Dominant Strategies
Application 2 1: Run With the Pitch
Application 2 2: Indiana Jones and the Last Crusade
Application 2 3: The Good, the Bad and the Ugly
Nash Equilibrium
Strictly-dominant Strategy Equilibrium
Weakly-dominant Strategies
Iterated Elimination of Strictly-Dominated Strategies
Three-Player Games
Non-Dominant Strategies
Application 2 4: A Beautiful Mind
Maximin Decision Rule
Minimax Regret Decision Rule
Chapter Review
Chapter Questions
Chapter Exercises
Notes
3. Focal-Point and Evolutionary Equilibria
Introduction
Multiple Nash Equilibria
Focal-Point Equilibrium
Developing a Theory of Focal Point Equilibria
Framing
Case Study 3 1: AZT versus Videx
Evolutionary Game Theory
Case Study 3 1: Evolutionary Equilibrium in Broadband Technology?
Chapter Review
Chapter Questions
Chapter Exercises
Notes
4. Infinitely-Repeated, Static Games with Complete Information
Introduction
Case Study 4 1: Extra Credit Game Part I
Collusion
Prisoner's Dilemma Revisited
Trigger Strategies
Evaluating Payoffs in Infinitely-Repeated Games
Cheating Rule for Infinitely-Repeated Games
Making Threats Credible
Application 4 1: The Hunt for Red October
Application 4 2: Fail-Safe
Determinants of Business Collusion
Chapter Review
Chapter Questions
Chapter Exercises
Notes
5. Finitely-Repeated, Static Games with Complete Information
Introduction
Finitely-Repeated Games with a Certain End
End-of-Game Problem
Case Study 5 1: Extra Credit Game Part II
Finitely-Repeated Games with an Uncertain End
Application 5 1: Groundhog Day
Cheating Rule for Finitely-Repeated Games with an Uncertain End
Common Enforcement Mechanisms
Case Study 5 2: Philip Morris versus BAT
Chapter Review
Chapter Questions
Chapter Exercises
Notes
6. Mixing Pure Strategies
Introduction
Zero-Sum Games
Minimax Theorem
Mixed Strategies
Optimal Mixing Rules
Computing Optimal Mixing rules
When to Use Optimal Mixing Rules
Randomizing Pure Strategies
Bluffing
Chapter Review
Chapter Questions
Chapter Exercises
Notes
7. Static Games with Continuous Strategies
Introduction
Continuous Strategies
Reaction (Best Response) Functions
Tragedy of the Commons
The Coase Theorem
Case Study 7 1: The Global Carbon Tax
Shifting Reaction Functions
Chapter Review
Chapter Questions
Chapter Exercises
8. Imperfect Competition
Introduction
Market Structure
Oligopoly
Models of Oligopoly
Case Study 8 1: Cournot-Nash Equilibrium in the Corn Wet Milling Industry
Case Study 8 2: The OPEC Price-Fixing Cartel
Case Study 4 2: Blood Diamonds
Chapter Review
Chapter Questions
Chapter Exercises
9. Perfect Competition and Monopoly
Introduction
Standard Model of Perfect Competition
Perfect Competition and Game Theory
Perfect Competition and the Cournot Model
How Many Firms are Necessary for Perfect Competition?
Standard Model of Monopoly
Sources of Monopoly Power
Monopoly and Game Theory
Contestable Monopoly
Chapter Review
Chapter Questions
Chapter Exercises
Notes
10. Strategic Trade Policy
Introduction
Case Study 10 1: Boeing versus Airbus
Strategic Trade Policy with Discrete Pure Strategies
Strategic Trade Policy with Continuous Pure Strategies
National Welfare
Intraindustry Trade
Imperfect Competition in International Trade
To Trade or Not to Trade?
Export Subsidies
Reciprocity
Case Study 10 2: U S -Japan Voluntary Export Restraints
Increasing Returns to Scale
Chapter Review
Chapter Questions
Chapter Exercises
Notes
11. Dynamic Games with Complete and Perfect Information
Introduction
Game Trees
Case Study 11 1: Sun Country versus Northwest Airlines
Subgame Perfect Equilibrium
Backward Induction
Simplifying the Notation
First-Mover Advantage
Case Study 11 2: Leader of the Pack
Credible Threats
Dynamic Games with Continuous Strategies
The Stackelberg Model
Chapter Review
Chapter Questions
Chapter Exercises
Notes
12. Bargaining
Introduction
Nash Bargaining
Dynamic Bargaining and the Last-Mover's Advantage
Dynamic Bargaining With Symmetric Impatience
Dynamic Bargaining With Asymmetric Impatience
Chapter Review
Chapter Questions
Chapter Exercises
Notes
13. Pure Strategies with Uncertain Payoffs
Introduction
Static Games with Uncertain Payoffs
Risk and Uncertainty
Case Study 13 1: Global Warming: Uncertainties, Certainties and Urgencies
Attitudes Towards Risk
Risk Averse Consumer Behavior
Risk Averse Firm Behavior
Dynamic Games With Uncertain Payoffs
Chapter Review
Chapter Questions
Chapter Exercises
Notes
Appendix 13A: Measuring Risk
14. Torts and Contracts
Introduction
Torts
Nash Equilibrium and Economic Efficiency
Contracts
Case Study 14 1: Economic Efficiency and the Common Law
Chapter Review
Chapter Questions
Chapter Exercises
Notes
15.
Auctions
Introduction
Business, Auctions, and the Internet
Case Study 14 1: FCC'S Wireless Spectrum Auction
Case Study 14 2: EBay
Types of Auctions
Auctions with Complete and Perfect Information
Auctions with Independent Private Values
Case Study 14 3: Google Goes Dutch
Auctions with Correlated Value Estimates
Common Value Auctions and the Winner's Curse
Auctions and Risk Averse Behavior
Revelation Principle
Chapter Review
Chapter Questions
Chapter Exercises
16. Dynamic Games with Imperfect Information
Introduction
Information Sets
Bayesian Updating
Adverse Selection and the Market for Lemons
Signaling
Spence Education Game
Case Study 16 1: U S News & World Report College Rankings
Separating Strategy
Pooling Strategy
Screening
Chapter Review
Chapter Questions
Chapter Exercises
Notes
Glossary of Terms and Concepts
References and Suggestions for Further Reading
Index
    
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