Oligopolies and Game Theory- EconMovies #8: The Dark Knight

anyhow unique on students this is mr. Clifford welcome to ecom's today we're gonna look at the economics in Batman no no wait we're going to look at the Dark Knight this movie actually has some great economic advice if you're good at something never do it for free now we're still talking about microeconomics and this time we're going to talk about oligopolies and oligopoly is when an industry is controlled by a few large producers for example the wireless cellphone market the United States is controlled by four main firms Verizon AT&T Sprint and t-mobile competition between these firms keeps prices down but what if they got together to set prices high so they can all make more profit this is called collusion now this is illegal in the United States and so there's two words to describe collusion unethical dangerous firms and oligopoly are interdependent this means that their decisions will directly affect their competitors so they have to be aware of how their competitors will respond so to maximize profit these firms have to use game theory which is the study of strategy this movie includes a great but rather violent example of game theory tonight you're all going to be a part of a social experiment I'm ready right now to blow you all die to get off their boat you all die each of you has a remote blow off the other boat if however one of you presses the button I'll let that boat live so gonna be just in case you haven't seen the movie spoiler alert let's talk about the classic example of game theory the prisoner's dilemma assume two people were arrested charged with a crime and put in two different cells oh my head Oh everything's fuzzy Wow punches a hand prisoner 1 and prisoner two have only two choices they can either deny or they can confess to the crime this means that there's only four possible outcomes that can occur if they both deny there's enough evidence put them in jail for 10 years each when reading these things the numbers on the left our prisoner 1 and the numbers on the right our prisoner 2 I color-coded them to help you better see this if they both confess to the crime they're both going to go to jail for 20 years but if prisoner 1 confesses and prisoner 2 denies prisoner 1 is basically going to rat out prisoner 2 and so prisoner 1 is going to go free and prisoner 2 is going to go to jail for 30 years now over here if prisoner 1 denies and prisoner 2 confesses prisoner 2 goes home free and prisoner 1 goes to jail for 30 years so what are they going to choose well that's the point of game theory before you can make a choice you have to keep in mind what the other person's going to do now this is a good way to introduce the idea of game theory but let's look at a better example that has firms and profits as you probably know Batman started as a comic book character what you might not know is that the comic book industry today is an oligopoly Marvel Comics has about 37% market shares and DC Comics the creators of Batman have about 31% market shares like most oligopolies the end product is sometimes very similar because they're trying to find what customers want and they steal ideas from each other so think of the story of Batman a handsome billionaire that dries fast cars and hangs out with beautiful women has a life-changing experience and inspires him to fight evil despite having no superpowers so instead he had to rely on gadgets and a special suit to fight terrorists aided by his trusted Butler he is betrayed by a mentor defeats a two bad guys and becomes a beloved hero this story sounds familiar anyways since the comic book industry is an oligopoly and controlled by a few large firms they have to use game theory so let's say that DC Comics and Marvel Comics are deciding whether or not they should make a new comic book series covering the back stories of famous butler's or villains DC is deciding whether they should have a series about Alfred or a series about Joker a long time ago I was in Burma my friends and I were working for the local government they were trying to buy the loyalty of tribal leaders by bribing them with precious stones Marvel is deciding between making a comic book about Jarvis or the Mandarin assume each company can make either one or the other and so the result is this game theory matrix this shows the profit that each firm would get in each of these different situations let's just keep it simple by having really low numbers to verify that you know how to read this thing let me ask you a quick question if DC decides to make a comic book about Alfred and Marvel does one about the Mandarin how much profit will Marvel get the answer is $200 now that you can read the chart let's talk about something called a dominant strategy if you have a dominant strategy that means you should make that choice no matter what in other words it doesn't matter what the other person does you should definitely choose that option so let's see if DC has a dominant strategy now if Marvel decides to go with Jarvis DC can choose between doing Alfred and getting $100 or going with Joker and getting $500 which one would DC rather have well they'd rather have $500 and so they're going to do a comic book about the Joker if Marvel chooses the Mandarin again DC would choose to do a comic book about the Joker that means that that option is their dominant strategy with these numbers there's no reason for them ever to make a comic book about Alfred sorry Alfred now let's see if Marvel has a dominant strategy if DC chooses Alfred Marvel can choose between doing a comic book about Jarvis and getting $300 or doing one about Mandarin and getting $200 Marvel would choose Jarvis if DC chooses the Joker Marvel can choose between doing Jarvis and getting $50 or doing a comic book about the Mandarin and getting $300 they would choose the Mandarin so depending on what DC to is marvel might choose Jarvis or they might choose the Mandarin this means they do not have a dominant strategy now if this was realistic and the firms did have all this perfect information where were the firm's end up well DC would obviously choose the Joker because that's their dominant strategy and Marvel would choose to do the Mandarin because that will give them the most profit this is the idea of something called a Nash equilibrium it's the end result there will be at when each firm makes choices to maximize their own profit but also keeps in mind what the other firm is going to do reading a game theory matrix and finding the different dominant strategies will take time and practice so be patient dominus strategies are not that hard to find seriously just calm down look at the game 3 matrix and you'll figure it out seriously dude just relax we are going to pull off the true crime of the century we are going to steal

Channel: Jacob Clifford

Views: 417,903

Rating: 4.9349189 out of 5

Keywords: economics, econ, EconMovies, EconPop, game theory, oligopolies, oligopoly

Id: JMq059SAQXM

Length: 7min 0sec (420 seconds)

Published: Sun Apr 27 2014