Question

Give brief definitions of the following concepts: Game theory, cooperative equilibrium, noncooperative equilibrium, dominant strategy, and Nash equilibrium, and price leadership. To do this, identify the definition for each term from the following list.

a) Actions taken by a firm to achieve a goal, such as maximizing profits.
b) The study of how people make decisions where attaining goals depends on interactions with others.
c) A table that shows the payoffs each firm earns from every combination of firm strategies.
d) An agreement among firms to charge the same price or otherwise not to compete.
e) A strategy that is the best for a firm, no matter what strategies other firms use.
f) A situation in which each firm chooses the best strategy, given the strategies chosen by other firms.
g) A game outcome in which players seek to increase their mutual payoff.
h) A game outcome in which players pursue their own self-interest.
i) A situation in which no player can make himself better off by changing his decision at any decision node.
j) A situation where one firm announces a price change, which is matched by other firms in the industry.

Answer 1

Answer: Game theory - "b) The study of how people make decisions where attaining goals depends on interactions with others."

Cooperative equilibrium - "g) A game outcome in which players seek to increase their mutual payoff."

Noncooperative equilibrium - "h) A game outcome in which players pursue their own self-interest."

Dominant strategy - "e) A strategy that is the best for a firm, no matter what strategies other firms use."

Nash equilibrium - "f) A situation in which each firm chooses the best strategy, given the strategies chosen by other firms."

Price leadership - "j) A situation where one firm announces a price change, which is matched by other firms in the industry."

Answer 2

Game theory is a branch of the economy that studies the decisions in which for an individual to succeed he has to take into account the decisions made by the rest of the agents involved in the situation.

The Nash equilibrium or Cournot equilibrium or Cournot and Nash equilibrium or fear equilibrium is, in game theory, 1 2 a "solution concept" for games with two or more players, 3 which assumes that:

• Each player knows and has adopted their best strategy, and
• Everyone knows each other's strategies.

Dominant strategies are considered better than other strategies, no matter what other players do. In game theory, there are two types of strategic domain:

• a strictly dominant strategy is the strategy that always provides greater utility to one player, regardless of the strategy of the other player;
• a weakly dominant strategy is the strategy that provides at least the same utility for all other player's strategies, and strictly superior for some of their strategies.