game theory - where firms make strategic decisions  

• firms try to get the best possible outcome/payoff
• strategy - plan for going through the game
  • optimal strategy - gives the best payoff
• noncooperative game - negotiation between firms not possible
  • no binding contracts
• cooperative game - firms negotiate, work together
  • have binding contract to dictate how they should behave
  • pursued in joint interest to help both sides

cooperative collusion - firms don't react to one another  

• find the quantity/price at equilibrium where MR=MC
  • no need to find reaction curves
• results in less output and higher profits than Cournot equilibrium
  • firms not in competition in this case
• competitive equilibrium >> P = MC >> zero profit
• Cournot equilibrium >> reaction curves set equal
• collusion >> MC = MR >> best outcome

• reaction curves
• Q = q₁+q₂