Lecture 14 - Backward Induction: Commitment, Spies, and First-Mover Advantages

We first apply our big idea–backward induction–to analyze quantity
competition between firms when play is sequential, the Stackelberg
model. We do this twice: first using intuition and then using
calculus. We learn that this game has a first-mover advantage, and
that it comes commitment and from information in the game rather
than the timing per se. We notice that in some games having more
information can hurt you if other players know you will have that
information and hence alter their behavior. Finally, we show that,
contrary to myth, many games do not have first-mover advantages.