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LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION 10-1 HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Neighborly.

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Presentation on theme: "LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION 10-1 HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Neighborly."— Presentation transcript:

1 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION 10-1 HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Neighborly Competitors? One Friday morning, Jack left home with a nearly empty gas tank. He drove out of his neighborhood, turned left onto Clifton Road and drove five miles without encountering a gas station. Then he arrived at the intersection of Clifton and Main, where he encountered two gas stations – advertising the exact same price. He shook his head and muttered: “What we need is more competition in this town! And a station closer to my house!”

2 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION 10-2 HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Perfectly Competitive Many buyers and sellers Low barriers to entry Identical products Firms have no influence on the price of the good Imperfectly Competitive Few sellers High barriers to entry Identical or differentiated products Firms can influence price of the good

3 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION 10-3 HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY The Prisoner’s Dilemma Confess Don’t Confess 5 yrs, 5 yrs1 yr, 10 yrs Don’t Confess 10 yrs, 1 yr2 yrs, 2 yrs Curly’s Strategies Moe’s Strategies

4 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION 10-4 HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY The Prisoner’s Dilemma Confess Don’t Confess 5 yrs, 5 yrs1 yr, 10 yrs Don’t Confess 10 yrs, 1 yr2 yrs, 2 yrs Curly’s Strategies Moe’s Strategies

5 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION 10-5 HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY The Prisoner’s Dilemma Confess Don’t Confess 5 yrs, 5 yrs1 yr, 10 yrs Don’t Confess 10 yrs, 1 yr2 yrs, 2 yrs Curly’s Strategies Moe’s Strategies

6 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION 10-6 HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY The Prisoner’s Dilemma Confess Don’t Confess 5 yrs, 5 yrs1 yr, 10 yrs Don’t Confess 10 yrs, 1 yr2 yrs, 2 yrs Curly’s Strategies Moe’s Strategies

7 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION 10-7 HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY The Prisoner’s Dilemma Confess Don’t Confess 5 yrs, 5 yrs1 yr, 10 yrs Don’t Confess 10 yrs, 1 yr2 yrs, 2 yrs Curly’s Strategies Moe’s Strategies

8 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION 10-8 HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY The Prisoner’s Dilemma Confess Don’t Confess 5 yrs, 5 yrs1 yr, 10 yrs Don’t Confess 10 yrs, 1 yr2 yrs, 2 yrs Curly’s Strategies Moe’s Strategies

9 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION 10-9 HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY The Prisoner’s Dilemma Confess Don’t Confess 5 yrs, 5 yrs1 yr, 10 yrs Don’t Confess 10 yrs, 1 yr2 yrs, 2 yrs Curly’s Strategies Moe’s Strategies

10 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY The Prisoner’s Dilemma Confess Don’t Confess 5 yrs, 5 yrs1 yr, 10 yrs Don’t Confess 10 yrs, 1 yr2 yrs, 2 yrs Curly’s Strategies Moe’s Strategies

11 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Game Theory Terms Game Strategy Payoff Dominant strategy Nash equilibrium Collusion

12 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Dueling Gas Stations

13 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Dueling Gas Stations High PriceLow Price High Price $1000, $1000$100, $1200 Low Price $1200, $100$250, $250 Alex Pat

14 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Split or Steal? SplitSteal Split5, 50, 10 Steal10, 01, 1 Player Two Player One

15 LESSON 10 GAME THEORY: ONE STEP AHEAD OF THE COMPETITION HIGH SCHOOL ECONOMICS 3 RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY Coke vs. Pepsi Launch a New Flavor? Launch Mango Pepsi Don’t Launch Launch Mango Coke -50, , -25 Don’t Launch-25, 1000, 0 Pepsi Coke Grid numbers represent changes in profits.


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