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# Cooperative Game theory

Market Structure: Oligopoly in Microeconomic Analysis from book Economics for Managers.

Market Structure: Oligopoly in Microeconomic Analysis from book Economics for Managers

1). Some games of strategy are cooperative. One example is deciding which side of the road to drive on. It doesn't matter which side it is, as long as everyone chooses the same side. Otherwise, everyone may get hurt.

Driver2
LEFT RIGHT
Driver 1 LEFT 0, 0 - 1000, - 1000
RIGHT - 1000, - 1000 0, 0

a). Does either player have a dominant Strategy?

b). Is there a Nash equilibrium in this game? Explain.

c). Why is this called a cooperative game?

2). A monopolist has a constant marginal and average cost of \$10 and faces a demand curve of Qd = 1000 - 10P. Marginal revenue is given by MR = 100 - 1/5Q.

a). Calculate the monopolist's profit-maximizing quantity, price, and profit.

b). Now suppose that the monopolist fears entry, but thinks that other firms could produce the product at a cost of \$15 per unit (constant marginal and average cost) and that many firms could potentially enter. How could the monopolist attempt to deter entry, and what would the monopolist's quantity and profit be now?

c). Should the monopolist try to deter entry by setting a limit price?

#### Solution Preview

1). Some games of strategy are cooperative. One example is deciding which side of the road to drive on. It doesn't matter which side it is, as long as everyone chooses the same side. Otherwise, everyone may get hurt.

Driver2
LEFT RIGHT
Driver 1 LEFT 0, 0 - 1000, - 1000
RIGHT - 1000, - 1000 0, 0

a). Does either player have a dominant Strategy?
We can determine the dominant strategy by placing in bold each player's best choice, given the other player's choice. So if Driver 2 has chosen Left, Driver 1 is best to choose left also. If he's chosen ...

#### Solution Summary

Cooperative Game theory as applied to driving

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