7: Game Theory Applications
- Page ID
- 43142
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- 7.1: Repeated and Sequential Games
- A game that is played only once is called a “one-shot” game. Repeated games are games that are played over and over again and actions are taken and payoffs received over and over again. Many oligopolists and real-life relationships can be characterized as a repeated game. Strategies in a repeated game are often more complex than strategies in a one-shot game, as the players need to be concerned about the reactions and potential retaliations of other players.
- 7.2: First Mover Advantage
- The first mover advantage is similar to the Stackelberg model of oligopoly, where the leader firm had an advantage over the follower firm. In many oligopoly situations, it pays to go first by entering a market before other firms. In many situations, it pays to determine the firm’s level of output first, before other firms in the industry can decide how much to produce. Game theory demonstrates how many real-world firms determine their output levels in an oligopoly.