February 2016
Beginner to intermediate
500 pages
33h 40m
English
Content preview from Managerial Economics and Strategy, 2/eBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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13.2 Sequential Games
In a static Cournot game (Chapter 12), before the firms (simultaneously) choose their output levels, Firm 1 could threaten Firm 2 that it will produce a very large output. If Firm 2 believed that threat, it would be in Firm 2’s best interest to reduce its output below the Cournot level, ceding an advantage to Firm 1. However, Firm 2 is unlikely to believe this threat as Firm 1 has not made any commitment to produce the large quantity and therefore might not do it. And Firm 2 could make the same threat, or at least could threaten to produce the Cournot quantity. Firm 1 should not be able to gain a strategic advantage over Firm 2 because they are in symmetric positions.
On the other hand, if Firm 1 produces a large quantity ...
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