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09.28 class

  • We went through the 2×2 game format of the classic Prisoner’s Dilemma, in our case applied to price wars or “Bertrand Competition”
  • Why aren’t price wars omnipresent? We focused on conditions in which they shouldn’t be observed, or should be limited in scope
    • quantities not flexible: that’s our previous analysis, in which the equilibrium outcome is that both firms in our symmetric duopoly make positive profits, but less than if they were a cartel setting monopoly prices
    • one firm has much lower costs, where there’s no need to cut prices much / the other firm has no incentive to cut prices
Hold Cut
Bud Hold 100, 100 180, 0
Cut 0, 180 80, 80