Game Theory 101: The Complete Textbook on Amazon:
This lecture begins our adventure through sequential games, in which players take turns moving. Not all Nash equilibria are sensible in this context, so we introduce a new concept: subgame perfect equilibrium. A subgame perfect equilibrium requires all actions to be Nash equilibria in every subgame of the larger game. In essence, this requires all threats players make to be credible.
We consider a game between two firms deciding whether to enter a market and engage in a price war. Can a monopolist’s threat to launch a price war convince a challenger to stay out of the market?
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