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Teaching notes for chapter 4

One of the great accomplishments of IO has been the rigorous application of game theory to the analysis of market competition. In fact, the game theoretic nature of IO is one of the main reasons why IO became so popular within economics--and with other related disciplines, such as strategy and marketing.

This chapter, which concludes the introductory part of the book, presents the main concepts of game theory that are necessary to understand the rest of the text. In fact, the chapter goes a little beyond what is strictly required to follow the rest of the text. As indicated in footnote c, Sections 4.2 and 4.3 can be skipped in a first reading. Not that sequential games and repeated games are unimportant: in fact, Chapters 12 and 15 introduce various sequential games; and Chapter 8 is essentially based on the notion of repeated games. However, Chapters 8, 12 and 15 are written in a way that allows for its comprehension without the prior reading of Sections 4.2 and 4.3.

There are two possible ``strategies'' regarding the placement of this chapter. One is to present the material upfront in its entirety. This has the advantage of giving a more unified view of game theory; it has the disadvantage that students have to bear a fair amount of material without seeing a significant payoff in terms of applications. An alternative strategy is to present Section 4.1 together with Chapter 7, Section 4.2 together with Chapters 12 and 15, and Section 4.3 together with Chapter 8. This has the advantage of introducing each concept together with an application; it has the disadvantage that game theory is introduced in a somewhat fragmented way.

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