5. An Application: Cournot Competition Under Capacity Constraints (Game Theory Playlist 7)

In this episode we introduce an extensive form game between two firms. In this game firms have infinitely many strategies. Although the game is sequential, the competition between the firms is simultaneous (Cournot competition), which creates the imperfect information. This game is different than Cournot because firms first choose their capacities and then choose their quantities. We solve for the subgame perfect Nash equilibrium of this game.
It's crucial to watch lecture videos in the proper order to ensure effective learning. This is because the concepts in each video build upon those introduced in previous videos. To help you with this, I recommend visiting my website, www.selcukozyurt.com, for a recommended course outline.

[@PankajKumar-ot3mg]

sir which textbook to refer for your game theory lectures?

[@PersianQuant]

I lost you in the case where both of them have L facilities. If this game is not simultaneous and is sequential, then how come did you calculate the quantities simultaneously? My result is different: since q2 = (900-q1)/2 and firm 1 is the first mover, then firm 1 will maximize \pi_1 = (900-q1-(900-q1)/2)*q1-175000. Solving, I found q1 = 450 and q2 = 225. Their profits will again be negative, but firm 1's profit is less negative than firm 2's.

[@aditigupta2803]

I have the same question between sequentiality of the game and the way we have solved it!

[@johnny_vannykay]

I have the same intuition as you. This is a sequential game and so the quantities should not be solved simultaneously. The first mover has the advantage by using the optimal strategy of the second mover to decide how much he should produce