Department of Economics
Florida International University
Spring Semester 2015
ECO7115
Micro Theory I
Kaz Miyagiwa
Office: DM 319A
Office Hours: Wed., 3: 00 – 5: 00 and by appointment
Email: kmiyagiw@fiu.edu
Course objectives
In this course we will study non-cooperative game theory and its applications to industrial
organization. Esoteric game theoretic topics are not to be covered.
Course Requirements
Two mid term exams (25% x 2); Final exam (50%)
Books
The main textbook is
Tirole, 1988, Theory of industrial organization (MIT)
This is still the standard textbook in IO, replete with journal-level applications of game
theory. Formal game theory is (chapter 11), however. Therefore we will also refer to the
relevant chapters of
Mas-Colell, Winston, and Green, Microeconomic Theory
for supplementary information. For a more detailed introduction, you might want consult
either of these books
Tadelis, 2013, Game theory: an introduction (Princeton).
Gibbons, 1992, Game theory for applied economists (Princeton),
from which we will be drawing more examples. If you already know basic game theory, go to
any of these more advanced textbooks:
Fudenberg and Tirole, 1990, Game theory (MIT)
Myerson, 1991, Game theory (Harvard)
Osborne and Rubinstein, 1994, A course in game theory (MIT)
Maschler, Solan and Zamir, 2013, Game theory (Cambridge)
For inspirations, read this thought-provoking classic by a Nobel laureate:
Schelling, 1960, The strategy of conflict (Harvard).
2
Course outline
Below is a partial list of readings. Additional articles may be assigned, depending on the
progress we make during the semester.
0. Introduction
Friedman, M., 1953, The methodology of positive economics, in his Essays in positive
economics, http://digamo.free.fr/hausman82.pdf#page=76
von Neumann, Morgenstern, 1944, The theory of games and economic behavior, chapter 1
Leonard, 1995, From parlor games to social science: von-Neumann, Morgenstern, and the
creation of game theory 1928-1944, Journal of Economic Literature
1. Static games of complete information
1.1. Dominance and Nash equilibrium
Mas-Colell, Whinston and Green (MWG), sections 8A – 8D, 8F, MH, MI
Tirole (TIO) 11.1, 11.2.1.1, 6.1
Gibbons (G): chapter 1
Tadelis (T): chapters 3 - 6
Myerson, 1999, Nash equilibrium and the history of economic theory, Journal of Economic
Literature
1.2. Applications
MWG, section 12C
TIO: Intro to chapter 5, 5.1, 5.4, 5.7, 7.1.1, 7.1.2., 7.5.1.
Krishna, 1989, Trade restrictions as facilitating practices, Journal of International Economics
Varian, 1980, A model of sales, American Economic Review
Mankiw and Whinston, 1986, Free entry and social inefficiency, Rand Journal of Economics
2. Dynamic games of complete information
2.1. Multi-stage games
MWG, chapter 9, A – C.
TIO: 11.3
G: Chapter 2
T: chapters 7 - 9
2.2 Applications: oligopoly models
MWG; 12E, 12F, 12G.
TIO; 5.2, 5.3, 5.7.2, 7.1, 7.3, chapter 8
Amir and Stepanova, 2006, Second-mover advantage and price leadership in Bertrand
duopoly, Games and Economic Behavior
d’Aspremont, Gabszewicz and Thisse, 1979, On Hotelling’s “stability in competition,
Econometrica
2.3. Repeated games
MWG; section12. D
3
TIO: chapter 6
G: 2.3
T; chapter 10
Abreu, 1986, Extremal equilibria of oligopolistic supergames, Journal of Economic Theory
Bernheim and Whinston, 1985, Multimarket contact and collusive behavior, Rand Journal of
Economics
Cremer, 1986, Cooperation in ongoing organization, Quarterly Journal of Economics
Rotemberg and Saloner, 1986, A supergame-theoretic model of price wars during booms,
American Economic Review
2.4. Simple timing games
TIO: 8.1.3, 8.6.2, 10.5
Fudenberg and Tirole, 1985, Preemption and rent equalization in the adoption of new
technology, Review of Economics Studies
2.5 Applications to the economics of innovation
TIO: chapter 10
d’Apremont and Jacquemin, 1988, Cooperative and non-cooperative R&D in duopoly with
spillovers, American Economic Review
Miyagiwa and Ohno, 2002, Uncertainty, spillovers and cooperative R&D, International
Journal of Industrial Organization
3: Static games of incomplete information
MWG, section 8E, chapter 14
TIO: 11.4, 9.1, chapter 0 (sections 2 and 3), 3.3
G: chapter 3
T: chapters 12, 14
Spulber, D. F., 1995, Bertrand competition when rivals’ costs are unknown, Journal of
Industrial Economics
4. Dynamic games of incomplete information
4.1. Signaling games and sequential equilibrium
MWG, section 9C, 9D, chapter 13
TIO: 11.5, 11.6.1.3, 11.6.2, 9.4, 9.5, 9.6,
G; chapter 4
T; chapters 15, 16
Cho and Kreps, 1987, “Signaling games and stable equilibria, Quarterly Journal of
Economics
4.2. Reputations and cheap talks
TIO: 6.5, 9.6
G: chapter 4
T: chapters 17, 18
Krishna and Morgan, 2005, http://pubmail.dklevine.com/econ504/cheap_talk.pdf
Crawford and Sobel, 1982, Strategic information transmission,” Econometrica
4
Gilligan and Krehbiel, 1987, Collective decision-making and standing committees, an
informational rationale for restrictive amendment procedure, Journal of Law, Economics
and Organization.