Industrial Organization: Contemporary Theory and Empirical Applications, 5th Edition

11

Dynamic Games and First and Second Movers

In 2007, Apple introduced its first iPhone. While other advanced, wireless phones already existed (principally, RIM's Blackberry), the iPhone was the first to allow input through a multi-touch screen rather than with a stylus or keypad, and the first to be compatible with downloadable applications. Its music playing and web browsing capacities were also far superior to anything that then existed. In short, this was the first of the modern “smart” phones.

Competition was not long in coming. In 2008, Google released the operating system Android as an open-source platform available to other hardware and software producers. T-Mobile was first with its HTC Dream phone but Motorola and Samsung soon began marketing their own Android-based phones. As this text is being written, Apple still retains its dominant position (within the United States, at least) as the leading smartphone manufacturer. However, the Android operating system now powers more smartphones across all manufacturers combined.¹

An essential feature of the above strategic interaction between Apple and its rivals is its sequential nature. That is, unlike the simultaneous games discussed in the previous two chapters, this rivalry evolved dynamically over time. First, Apple took an action, and then—after that action was taken and observed—its rivals, principally Google, responded with their own action. Such dynamic games are the focus of this chapter. In principal, these games can ...