Game Theory and Imperfect Competition

These flashcards cover key concepts related to game theory and imperfect competition, providing definitions for terms essential in this field.

Prisoner's Dilemma

A situation in game theory where two individuals act in their own interests and produce a worse outcome than if they had cooperated.

Nash Equilibrium (NE)

A strategy profile where no player can benefit by changing their strategy while the other players keep theirs unchanged.

Dominated Strategy

A strategy that yields a worse outcome for a player than another strategy, regardless of what the other players do.

Strictly Dominated Strategy

A strategy that is worse than another strategy in all possible scenarios.

Normal Form Games

A representation of a game in which players simultaneously choose strategies and the outcomes are displayed in a matrix.

Mixed-Strategy Nash Equilibrium (msNE)

An equilibrium where players randomize over available strategies; each player's strategy is optimal given the others' strategies.

Backward Induction

A method used in sequential games to determine optimal strategies by analyzing the game from the end to the beginning.

Subgame Perfect Nash Equilibrium (SPNE)

A refinement of Nash Equilibrium applicable in dynamic settings, where strategies are optimal for every subgame of the original game.

Bayesian Nash Equilibrium (BNE)

An equilibrium concept in games of incomplete information, where players maximize expected payoffs considering their beliefs about other players' types.

Cournot Model

A model of oligopoly where firms compete by choosing quantities to produce, leading to a unique equilibrium if firms have similar costs.

Equilibrium Output

The level of production where supply equals demand in a market.

First-Mover Advantage

The strategic advantage gained by being the first to act in a competitive environment.

Sequential-Move Games

Games where players make decisions one after another, allowing later players to observe earlier actions.

Pure Strategies

Strategies that involve consistently choosing the same action in a game.

Simultaneous-Move Games

Games where players choose their actions independently and without knowledge of the others' choices.