Hello and welcome to the second module of Competitive Strategy. I'm really happy to have you here. In the first module we've looked at simultaneous and at sequential games. And we've drawn a game matrix or a game tree. We did this to find the natural equilibrium or the natural resting point of the game. It also likes to tell us which strategy we should pursue. We have seen that firms act rationally and that they compete against each other in the market. And the most prominent example. That we discussed is a situation of a prisoner's dilemma. Where two competitors earn higher profits through cooperation but they still prefer to compete against each other because it seems more rational and it maximizes their individual profits rather than their joint profits. If we look at the real world and at real markets, however, we often see that firms are fairly friendly to each other. They cooperate one way or another and they do not end up in the severe price war all the time. So in this module therefore, we want to understand why is this happening. Why do firms work together? We will see that it matters where the firms interact repeatedly in the same market. In terms of game theory, repeated interaction means playing the same game again and again and again. We will differentiate between finite games and games that are repeated and infinite number of times. And this distinction is going to have a great impact on the likelihood of cooperation. We will also look at a mechanism called commitment. This mechanism can help us foster cooperation. And again, cooperation can be good because it's going to enable firms to charge higher prices and make higher profits. In terms of examples, we will talk about street lights for the Olympic Games. We will talk about the so called, Diamond Cartel, run by DeBeers. And we will discuss issues about Boeing and Airbus. All of these are examples of were firms in the same market somehow manage to cooperate. So does this sound interesting? Well I hopes so. And I look froward to seeing you again in the next couple of video lectures. Thank you very much.
