Managerial Economics and Strategy, 2/e

Summary

1. Repeated Games. In some dynamic games, a constituent game (a static game) is repeated over subsequent periods, such as when firms make price or quantity decisions every quarter. Therefore, a firm may use a strategy in which it makes a particular move contingent on its rival’s actions in previous periods. By using contingent strategies, such as a tit-for-tat strategy or another trigger strategy, it is often easier for firms to maximize their joint payoff—achieve a collusive solution—in a repeated game than in a single-period game.

2. Sequential Games. In other dynamic games, firms move sequentially, with one player acting before another. By moving first, a firm is able to make a commitment or credible threat. As a consequence, the first ...