Chapter 13, Problem 1RQ

To determine

The difference between the cooperative game and non-cooperative game.

Explanation of Solution

In a cooperative game, players communicate and arrange binding contracts where both parties must adhere with the agreement must adhere. If there is no formal communication in coordinating each other’s actions, it is a non-cooperative game. In a non-cooperative game, even though the players act independently, they are aware of other’s existence and know the payoffs of each other. A joint venture or a formal cartel agreement such as OPEC is an example of a cooperative game. Non cooperative game typically happens in the R&D (Research and Development) where the companies contest to obtain a patent.

Economics Concept Introduction

Cooperative game: Cooperative game is the game which the players formally communicate and arrange the binding contracts.

Non-cooperative game: Non-cooperative game is the game which the players does not communicate or arrange the binding contracts but is well aware of the existence and payoffs each other.