Advanced Microeconomics II (2010)

Last up-dated: July 27, 2010

Office Hours: Tuesdays 14:00-16:00 (also by appointment)

1. Important Announcement

• Total score (Midterm + Final): Mean score 75.7, Highest 100, Lowest 51, Standard deviation 15.8. Grading standard distribution are as follows: A: 79-100 (15 students), B: -79 (13 students). July 27

• Graded final exams will be returned to your mail-boxes tomorrow: Mean score 36.7, Highest 50, Lowest 20, Standard deviation 8.78. July 27

• Graded midterm exams will be returned to your mail-boxes tomorrow: Mean score 39.0, Highest 50, Lowest 24, Standard deviation 8.54. July 27

• The solution key for the final exam is uploaded. July 27

• The solution key for the practice final exam is uploaded. There was a typo in Question 6: "payoff for each candidate" => "payoff for each citizen." July 23

• There is a final exam on July 27 in class. The exam covers lectures 6 through 13 and 14 (Bargaining problems) will not be covered. July 20

• The office hour on July 20 is moved to July 23 (FRI) from 14:00 - 17:00. July 20

• The solution key for the midterm is uploaded. June 29

• There is a midterm exam on June 29 in class. The exam covers lectures 1 through 5, so lecture 6 (Dynamic game) will not be covered. June 28

2. Course Description syllabus

This is an advanced course in microeconomics, succeeding to Advanced Microeconomics I (ECO600E) in which we study individual economic decisions and their aggregate consequences under ideal situations. In this course, we extend our previous analyses to incorporate imperfectly competitive market structures, dynamic market competitions, and incomplete information. To this end, we study game theory, a collection of mathematical tools for analyzing strategically interdependent situations. Most of the topics covered in this course parallels to those of Game Theory (ECO290E), but are explained in much more rigorous way. Course grade will be determined by a midterm exam (50%) and a final exam (50%).

3. Course Outline

1. Monopoly June 1

   • [NS] Ch.14

2. Static games and Nash equilibrium June 8

   • [G] Ch.1.1; [NS] Ch.8

   • Gibbons (1997)

3. Static oligopoly models I June 9

   • [G] Ch.1.2; [NS] Ch.15

4. Static oligopoly models II June 15

   • [G] Ch.1.2; [NS] Ch.15

5. Mixed strategies June 16

   • [G] Ch.1.3; [NS] Ch.8

6. Dynamic games and extensive-form June 22

   • [G] Ch.2.1, 2.2.A and 2.4; [NS] Ch.8

7. Midterm exam June 29 90 minutes, 50 points

   • Files: practice (solution) exam (solution)

8. Subgame perfect Nash equilibrium June 30

   • [G] Ch.2.1.B; [NS] Ch.15

   • Reny (1992)

9. Applications of dynamic games July 6

   • [G] Ch.2.1.D; [NS] Ch.15

   • Fudenberg and Tirole (1984)

10. Repeated games July 7

    • [G] Ch.2.3; [NS] Ch.15

    • Bagwell and Wolinsky (2002)

11. Static games with incomplete information July 13

    • [G] Ch.3.1, 3.2 and 3.3; [NS] Ch.8

    • Paul Klemperer (2003)

12. Applications of Incomplete Information Games July 14

    • [G] Ch.4.2 and 4.3.A; [NS] Ch.8

    • Farrell and Rabin (1996)

13. Dynamic games with incomplete information July 20

    • [G] Ch.4.1; [NS] Ch.8

14. Bargaining Problems July 21

    • Nash (1950); Osborne and Rubinstein (1990)

15. Final exam July 27 90 minutes, 50 points

    • Files: practice (solution) exam (solution)

4. Textbooks

There are two main textbooks for this course:

[G] Robert Gibbons, Game Theory for Applied Economists, 1992

[NS] Walter Nicholson and Christopher Snyder, Microeconomic Theory: Basic Principles and Extensions, 10th edition, 2007

A useful text at roughly the same level as Gibbons, but contains variety of example is:

Martin Osborne, An Introduction to Game Theory, 2004

A useful textbook for game theoretical analyses on oligopoly markets is:

Luis Cabral, Introduction to Industrial Organization, 2000

Those who look for more lucid treatment than the above textbooks may consult with the following authoritative sources. The former incorporates game theoretical perspectives into microeconomics in depth, and the latter is as standard textbook most widely used in Economics Ph.D. microeconomics courses.

David Kreps, A Course in Microeconomic Theory, 1990

Andreu Mas-Colell, Michael Whinston and Jerry Green, Microeconomic Theory, 1995

5. Related Materials

• Kyle Bagwell and Asher Wolinsky (2002), "Game Theory and Industrial Organization," A chapter in Handbook of Game Theory with Economic Applications. SSRN

• Joseph Farrell and Matthew Rabin (1996), "Cheap Talk," Journal of Economic Perspectives, 6: 83-101. JSTOR

• Drew Fudenberg and Jean Tirole (1984), "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review (Papers and Proceedings), 74:361-366. JSTOR

• Martin Osborne and Ariel Rubinstein (1990), "The Aciomatic Approach: Nash's Solution," Chapter 2 in Bargaining and Markets, Academic Press.

• John Nash (1950), "The Bargaining Problem," Econometrica, 18: 155-162. JSTOR

  • Robert Gibbons (1997), "An Introduction to Applicable Game Theory," Journal of Economic Perspectives, 11: 127-149. JSTOR

  • Jeorge Mailath (1998), "Do People Play Nash Equilibrium? Lessons from Evolutionary Game Theory," Journal of Economic Literature, 36: 1347-1374. JSTOR

• Paul Klemperer (2003), "Why Every Economist Should Learn Some Auction Theory," Chapter 2 in Advances in Economics and Econometrics, Volume 1, edited by Dewatripont, Hansen, and Turnovsky. Link to the final draft

• Philip Reny (1992), "Rationality in Extensive-Form Games," Journal of Economic Perspectives, 6: 103-118. JSTOR

• Joel Watson (2008), "Perfect Bayesian Equilibrium," Chapter 28 in Strategy: An Introduction to Game Theory, W. W. Norton.

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