In finite games it is clear from the beginning how often the game is repeated and when it ends.
If the outcome of a game is determined by the fact that in the last stage of the game there is no further threat of retaliation, this is called end game effect.
Because of the endgame effect, each period is treated as it would be the last period of the game. This results in the fact that each stage of the game is treated equally and hence the equilibrium of the game is the same in each stage of the game.
Interest Rat <-> Cartel
If the interest rate goes down, future payoffs are less relevant – or put it differently, it is less costly to replicate payoffs in the future with money that is earned today. Hence, the players are less worried about being punished in the future, and deviating is getting relatively more attractive.
Aggressive commitment
* Eliminate unattractive equilibria
* Change simultaneous game to sequential one.
Dominated Strategy
A strategy is dominated if, regardless of what the other player does, the strategy earns the player a smaller payoff than some other strategy. Hence, a strategy is dominated if it is always better to play some other strategy, regardless of what the opponent may do.
A Nash Equilibrium is a set of strategies, one for the player and his/her opponent, that represents the best responses to each other.
Which are the important parts of a game (in context of game theory)?
a) How many players are there and who are they?
b) What are the possible actions these players can opt for?
c) What are the payoffs related to the different combinations of actions?
d) What are the rules of the game?
=> Matrix => Structured Analysis
Nash Equilibrium
* A combination of strategies
* No player can deviate unilaterally from his/her current strategy
* To improve his/her payoffs
A game can contain no Nash Equilibrium at all, one Nash Equilibrium or several Nash Equilibria.