Game Theory

Introduction

The game theory was first introduced in the year 1944 by Oscar Morgenstern and John Neumann, the theory depicts that decisions are made with a consideration of the decisions by other agents, therefore the decisions by firms or organisations will depend on the decisions that will be undertaken by the other firm or organisation(Areeda, 697). The game theory is also related to the Nash equilibrium which depict that the best response by the players is that which is in accordance to one another actions and through this equilibrium is achieved. The Nash equilibrium was as a result of the work of John Nash. (Bagwell, 59).

Discussion

The models discussed are selected according to two criteria. First, use a relatively important game idea theory. The second requirement is that the use of the idea of game theory gives a relatively strong economic knowledge. Mathematical models of the economy allowed to express ideas clearly and accurately. In particular, clarify the circumstances in which ideas are valid. They also facilitate the application of mathematical techniques, which sometimes give information that could not be obtained by simple introspection alone. 2 We will argue below that the models of game theory in industrial organization to serve both of these functions. As mentioned earlier, we do not intend to study the field ... industrial organization or the most important contributions to it (Bagwell, 155). As a result, many important contributions and contributors influential many not mentioned here. This should not be misconstrued to suggest that these contributions are not important or less important than those who were actually selected for the survey.

Price limits under asymmetric information Milgrom and Roberts (1982) consider the classic scenario is for a monopoly facing a single potential competitor. The novelty of his analysis is that the owner has some private information about their production costs. This information is valuable to the participant, because its result after the entry is affected by the holder of the level of cost: the lower cost is the holder, the lower the competitor profit from the entry. So, instead of committed relationship studied by previous literature, Milgrom and Roberts proposed a link between the owner information of the conduct prior to the entry and entry operator expected after the profit. The situation can be modeled as a signaling game: the participant attempts to infer the cost information by observing the incumbent pricing prior to entry, while the owner decide its price on the understanding that this election can affect the prospect of the entry. The holder and the participant to think that their costs are low to make entry seem less favorable ... table.

As in other signaling models, the equilibrium price signal therefore may be distorted away from their level of myopia. In the present context, the price is distorted if re di euro myopic monopoly price (i.e. the price that would prevail in the absence of the threat of entry). To correspond to the conjecture original price limit, the equilibrium price has to be a low ...