APPLIED ECONOMICS FOR MANAGERS SESSION 11 I GAME THEORY AND OLIGOPOLY RESULTS AND INSIGHTS A COURNOT S INSIGHT 1 NUMBERS MATTER 2 MORE FIRMS MAKE FOR A MORE COMPETITIVE OUTCOME 3 COLLUSION AND CARTELS B BERTRAND S INSIGHT 1 PRICE COMPETITION IS FIERCE AND CAN DUPLICATE COMPETITIVE OUTCOME EVEN IF WITH ONLY 2 FIRMS 2 PRODUCT DIFFERENTIATION AND CAPACITY CONSTRAINTS C STACKELBERG S INSIGHT 1 ORDER OF PLAY IS IMPORTANT 2 SUSTAINED DOMINANCE OF ONE FIRM D REPEATED GAMES 1 FINITELY REPEATED GAMES EXHAUSTIBLE RESOURCE 2 GAMES OF INDEFINITE DURATION E NON QUANTITY PRICE GAMES II EXTERNALITIES A ECONOMIC EFFICIENCY PRICE INDICATES TRUE VALUE AND TRUE COST AT THE MARGIN B EXTERNAL EFFECTS 1 COSTS IMPOSED ON PARTY NOT INVOLVED IN THE TRADE PRICE DOES NOT EQUAL TRUE MARGINAL COST 2 BENEFITS EXTEND TO PARTY NOT INVOLVED IN THE TRADE PRICE DOES NOT EQUAL TRUE MARGINAL VALUE 3 A COMMON TRAGEDY III MARKET FAILURE OR A FAILURE TO USE MARKETS A MARKETS AND PROPERTY RIGHTS 1 PROPERTY RIGHTS AS A MARKET NECESSITY 2 ABSENCE OF PROPERTY RIGHTS AS THE SOURCE OF EXTERNALITY PROBLEMS 3 RE INTRODUCTION OF THE MARKET REQUIRES REINTRODUCTION OF PROPERTY RIGHTS B COASE PROPERTY RIGHTS AND EFFICIENCY 1 PEDESTRIANS CARS AND WALK SIGNS 2 ASSIGNMENT OF PROPERTY RIGHTS AND DISTRIBUTION C MARKET LIKE SOLUTIONS TO THE PROBLEM IN FIJENSEA IV NETWORK EXTERNALITIES OR POSITIVE FEEDBACK A A WAKE UP CALL FROM NEWARK OHIO B POSITIVE FEEDBACK FOR MS WINDOWS 1 CONSUMERS LIKE BEING ABLE TO INTERACT THEIR PRODUCTS THE MORE PEOPLE USE WINDOWS THE MORE PEOPLE WANT TO USE WINDOWS 2 SCALE ECONOMIES IN SOFTWARE PRODUCTION THE MORE PEOPLE THAT USE WINDOWS THE MORE SOFTWARE DESIGNERS WANT TO WRITE APPLICATIONS THAT WORK ON WINDOWS C THE APPLICATIONS BARRIER TO ENTRY 1 NO FIRM CAN CHALLENGE WINDOWS IN THE OPERATING SYSTEM MARKET UNLESS IT HAS A LOT OF APPLICATIONS 2 BUT NO ONE WRITES APPLICATIONS FOR AN OPERATING SYSTEM UNTIL IT IS SUCCESSFUL D THE BROWSER WAR 1 NETSCAPE HAD DOMINANT SHARE OF BROWSER MARKET 2 BROWSER MIGHT BE A FEASIBLE ALTERNATIVE PLATFORM 3 DESIGNERS WOULD WRITE APPLICATIONS FOR THIS PLATFORM E MICROSOFT RESPONSE 1 DEVELOP OWN BROWSER AND OFFER AT 0 PRICE 2 TIE UP OEM S WITH LONG TERM CONTRACTS IV PUBLIC GOODS A NON RIVALRY IN CONSUMPTION MARGINAL COST 0 B NON EXCLUDABILITY CAN T EXCLUDE THOSE WHO DON T PAY C TAXES AND PUBLIC FINANCE