13.1 Static Games

We begin by examining static games, in which the players choose their actions simultaneously, have complete information about the payoff function, and play the game once. Our example is a simplified version of the real-world competition between United Airlines and American Airlines on the Los Angeles–Chicago route (based on the estimates of Brander and Zhang, 1990), where we allow the firms to choose only one of two possible quantities.

The game has the following characteristics. The two players or firms are United and American. They play a static game—they compete only once. The rules of the game specify the possible actions or strategies that the firms can take and when they can take them. Each firm has only two possible ...

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