Micro Ch 12, 13, 14

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1. Game theory a set of tools that economists, political 15. Dominant a strategy that produces a higher payoff
scientists, military analysts and other use strategy than any other strategy the player can use
to analyze decision making by players for every possible combination of its rivals'
who use strategies strategies
2. Game any competition between players (firms) 16. Prisioners' a game in which all players have dominant
in which strategic behaviour plays major dilemma strategies that result in profits that are
role inferior to what they could achieve if they
used cooperative strategies
3. Action a move that a player makes at a specified
stage of a game, such as how much 17. Best response the strategy that maximizes a player's
output a firm produces in the current payoff given its beliefs about its rivals'
period strategies
4. Strategy a battle plan that specifies the action that 18. Nash a set of strategies such that, when all other
a player will make conditional on the equilibrium players use these strategies, no player can
information available at each move and obtain a higher payoff by choosing a
for any possible contingency different strategy
5. Payoffs players' valuations of the outcomeof the 19. Pure strategy each player chooses an action with
game, such as profits for firms or utilities certainty
for individuals
20. Mixed strategy a firm or player chooses among possible
6. Strategic a set of actions a firm takes to increase actions according to probabilities it
behaviour profit, taking into account the possible assigns
actions of other firms
21. Uniform Pricing charging the same price for every unit
7. Common a piece of information that is known by all sold of a particular good
knowledge players, and must be known by all players
22. Nonuniform charging consumers different prices for
to be known...
Pricing the same product or charging a single
8. Strategic a player's optimal strategy depends on customer a price that depends on the
interdependence the actions of others number of units the customer buys
9. Rules of the regulations that determine the timing of 23. Price practice in which a firm charges
game players' moves and the actions that Discrimination consumers different prices for the same
players can make at each move good
10. Complete the situation where the payoff function is 24. Perfect Price a firm sells each unit at the maximum
information common knowledge among all players Discrimination amount any customer is willing to pay for
(first-degree it, so prices differ across customers and a
11. Perfect the situation where the player who is
price given customer may pay more for some
information about to move knows the full history of
discrimination) units that others
the play of the game to this point, and
that information is updated with each 25. Group Price a firm charges each group of customers a
subsequent action Discrimination different price, but it does not charge
(third-degree different prices within the group
12. Static game a game in which each player acts only
price
once and the players act simultaneously
discrimination)
13. Dynamic game a game in which players move either
26. Nonlinear Price a firm charges a different price for large
sequentially or repeatedly
Discrimination quantities than for small quantities but all
14. Normal form a representation of a static game with (second-degree customers who buy a given quantity pay
complete information specifying the price the same price
players in the game, their possible discrimination)
strategies, and the payoff function that
27. Reservation the maximum amount a person would be
identifies the players' payoffs for each
Price willing to pay for a unit of output
combination of strategies
28. Two Part Pricing a pricing system in which the firm charges
each consumer a lump-sum access fee for
the right to buy as many of the good as
the consumer wants at a per unit price
29. Tie-In Sale a type of nonlinear pricing in which 44. winner's the auction winner's bid exceeds the common-
consumers can buy one product only if they curse value item's value; occurs when there is
agree to buy another product as well uncertainty about the good's value
30. Requirement a tie-in sale in which customers who buy 45. private a good where each potential bidder places a
Tie-In Sale one product from a firm are required to value different personal value
make all their purchases of another product
46. common a good that has some fundamental but unknown
from that firm
value value to everyone
31. Bundling selling multiple goods or services for a
47. English ascending bid; lowest to highest price; price to
(package tie- single price
auction highest bidder
in sale)
48. Dutch descending bid auction; ends dramatically with
32. multi market a situation which a firm charges different
auction the first bid
price groups different prices but charges a given
discrimination customer the same price for every unit of
(third-degree output sold
price
discrimination)
33. Oligopoly a small group of firms in a market with
substantial barriers to entry
34. Cartel a group of firms that explicitly agree to
coordinate their activities
35. Monopolistic a market structure in which firms have
Competition market power but no additional firm can
enter and earn positive profit
36. Duopoly an oligopoly with two firms
37. Cournot a set of quantities chosen by firms such that,
Equilibrium holding the quantities of all other firms
(Nash- constant, no firm can obtain a higher profit
Cournot by choosing a different quantity
equilibrium)
38. Minimum the smallest quantity at which the average
Efficient Scale cost curve reaches its minimum
(full capacity)
39. backward used to solve for the subgame perfect Nash
induction equilibrium; first determine the best
response by the last player to move; next
determine the best response for the player
who made the next to last move; repeat the
process until reahing the move at the
beginning of the game
40. subgame consists of all the subsequent decisions that
players may make given the actions already
taken
41. subgame formed by a set of strategies; the players'
perfect Nash strategies are a Nash equilibrium in every
equilibrium subgame
42. credible a firm's announced strategy which rivals
threat must believe to be rational/ in the firm's best
interest to use
43. auction a sale in which a good or service is sold to
the highest bidder